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The Federal Reserve Bank of Dallas calculated the economic cost of a really hot summer.
What happens to the economy when it gets hot and stays hot?
That’s the question a group of economists at the Federal Reserve Bank of Dallas tried to answer, looking at Texas’s record-breaking heat this summer, which strained the state’s electrical grid.
“The impact of the sometimes relentless summer 2023 heat appears to have depressed the ability of some industries to supply goods and damped consumer demand, especially for certain services,” the group said in the slightly bloodless language of economists.
Looking at a broader range of summers, in this case from 2000 to 2022, the economists found that “for every 1-degree increase in average summer temperature, Texas annual nominal GDP growth slows 0.4 percentage points.”
When looking at this past summer, the economists figured that “with this year's summer temperatures 2.5 degrees above the post-2000 average, estimates for Texas suggest, all else equal, the summer heat could have reduced annual nominal GDP growth by 1 percentage point for 2023, or about $24 billion.”
All signs pointed to economic sluggishness due to high heat. Federal Reserve banks don’t just gather and analyze a huge amount of quantitative data — on, say, employment and wages — from the regions they cover and the economy as a whole, they also systematically collect qualitative data from businesses, i.e. asking the people who run them questions.
When the Dallas Fed surveyed businesses in its region in Texas, it found that a quarter of the respondents “reported lower revenue or lower production due to the heat,” especially in the leisure and hospitality sector, which could mean anything from fewer hotel stays to fewer trips out to eat.
It wasn’t just heat depressing consumer demand for these services, but also high heat leading to a less productive workforce, the Dallas Fed analysis showed.
And these effects don’t just show up in one record breaking summer. “Analysis on data since the mid-1960s indicates an increase in summer temperatures leads to slower output growth,” the researchers wrote. “The higher the average summer temperature, the greater the impact of additional temperature increases, likely due to more adverse effects on health and productivity.”
This effect was magnified by something that will be familiar to climate scientists: nonlinearity. It’s not just that every degree increase in average summer temperature leads to some decrease in economic output, but that the effect of higher-than-average summer temperatures on economic growth is greater in already hot states, like Texas, with similar effects in nearby states like Louisiana, Arkansas, and Oklahoma.
It's easy to think of an example. Say you’re in an area where the typical summer temperature is 75 degrees Fahrenheit. If it’s actually 80 degrees out one day, you may not be very discouraged to play golf or go to an amusement park. But if it’s typically 85 degrees out, temperatures rising to 90 may encourage you to stay home.
When it’s extremely hot, people also get sick and don’t show up to work, according to data cited by the Dallas Fed, which found that “hours worked decline significantly when daily maximum temperatures rise above 85 degrees.” And, more seriously, there’s a bump in mortality from extreme heat.
With Texas summers projected to only get hotter — the state’s climatologist wrote in a report that “the typical number of triple-digit days by 2036 is projected to be substantially larger, about 40% larger than typical values so far in the 21st Century” — a mild decrease in economic growth may be the least of its climate-related problems.
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Elgin Energy Center is back from the dead.
At least one natural gas plant in America’s biggest energy market that was scheduled to shut down is staying open. Elgin Energy Center, an approximately 500 megawatt plant in Illinois approximately 40 miles northwest of downtown Chicago was scheduled to shut down next June, according to filings with the Federal Energy Regulatory Commission and officials from PJM Interconnection, the country’s largest regional transmission organization, which governs the relevant portion of the U.S. grid. Elgin’s parent company “no longer intends to deactivate and retire all four units ... at the Elgin Energy Center,” according to a letter dated September 4 and posted to PJM’s website Wednesday.
The Illinois plant is something of a poster child for PJM’s past few years. In 2022, it was one of many natural gas plants to shut down during Winter Storm Elliott as the natural gas distribution seized up. Its then-parent company, Lincoln Power — owned by Cogentrix, the Carlyle Group’s vehicle for its power business — filed for bankruptcy the following year, after PJM assessed almost $40 million in penalties for failing to operate during the storm. In June, a bankruptcy court approved the acquisition of the Elgin plant, along with one other, by Middle River Power, a generation business backed by Avenue Capital, a $12 billion investment firm, in a deal that was closed in December.
The decision to continue operating the plant past its planned deactivation comes as PJM set a new price record at its capacity auction in July, during which generators submitted bids for power that can be deployed when the grid is under stress due to high demand. The $14.7 billion auction was a massive jump from the previous one, which finished at just over $2 billion. Ironically, one reason the most recent auction was so expensive is that PJM gave less credit to natural gas generators for their capacity following Winter Storm Elliott, which then drove up auction prices, leading to large payouts for gas plants. PJM said the high auction prices were “caused primarily by a large number of generator retirements.”
In a bankruptcy court filing in 2023, Lincoln Power’s chief restructuring officer said that the company “was experiencing a liquidity crunch” due to low prices in past capacity auction, which meant that it had “received significantly less revenues for the capacity they sold in those Capacity Auctions as compared to previous Capacity Auctions.” With higher capacity revenues in PJM, presumably Elgin's business has improved.
Many analysts are skeptical that PJM can quickly get new load onto the system to bring prices down meaningfully in subsequent auctions — the next one is in December — and the PJM queue for new projects is absurdly clogged. This only juices the incentives for older fossil plants to stay open.
“This shortage of capacity is happening immediately,” Nicholas Freschi, senior associate at Gabel Associates, told me last week. “There might be more resources, and PJM might be able to coerce some retiring or not participating plants to make up for the shortfall. It’s an immediate problem.”
Neither Middle River nor its attorney representing the company before FERC returned requests for comment.
In the closing minutes of the first presidential debate tonight, Donald Trump’s attacks on Kamala Harris took an odd, highly specific, and highly Teutonic turn. It might not have made sense to many viewers, but it fit into the overall debate’s unusually substantive focus on energy policy.
“You believe in things that the American people don’t believe in,” he said, addressing Harris. “You believe in things like, we’re not gonna frack. We’re not gonna take fossil fuel. We’re not gonna do — things that are going to make this country strong, whether you like it or not.”
“Germany tried that and within one year, they were back to building normal energy plants,” he continued. “We’re not ready for it.”
What is he talking about? Let’s start by stipulating that Harris has renounced her previous support for banning fracking. During the debate, she bragged that the United States has hit an all-time high for oil and gas production during her vice presidency.
But why bring Germany into it? At the risk of sane-washing the former president, Trump appears to be referencing what German politicians call the Energiewiende, or energy turnaround. Since 2010, Germany has sought to transition from its largest historic energy sources, including coal and nuclear energy, to renewables and hydropower.
The Energiewiende is often discussed inside and outside of Germany as a climate policy, and it has helped achieve global climate goals by, say, helping to push down the global price of solar panels. But as an observant reader might have already noticed, its goals are not entirely emissions-related: Its leaders have also hoped to use the Energiewiende to phase out nuclear power, which is unpopular in Germany but which does not produce carbon emissions.
The transition has accomplished some of its goals: The country says that it is on target to meet its 2030 climate targets. But it ran into trouble after Russia invaded Ukraine, because Germany obtained more than half of its natural gas, and much of its oil and coal besides, from Russia. Germany turned back on some of its nuclear plants — it has since shut them off again — and increased its coal consumption. It also began importing fossil fuels from other countries.
In order to shore up its energy supply, Germany is also planning to build 10 gigawatts of new natural gas plants by 2030, although it says that these facilities will be “hydrogen ready,” meaning that they could theoretically run on the zero-carbon fuel hydrogen. German automakers, who have lagged at building electric vehicles, have also pushed for policies that support “e-fuels,” or low-carbon liquid fuels. These fuels would — again, theoretically — allow German firms to keep building internal combustion engines.
So perhaps that’s not exactly what Trump said, to put it mildly — but it is true that to cope with the Ukraine war and the loss of nuclear power, Germany has had to fall back on fossil fuels. Of course, at the same time, more than 30% of German electricity now comes from wind and solar energy. In other words, in Germany, renewables are just another kind of “normal energy plant.”
Hunter Biden also made an appearance in Trump’s answer to the debate’s one climate question.
Well, it happened — over an hour into the debate, but it happened: the presidential candidates were asked directly about climate change. ABC News anchor Linsey Davis put the question to Vice President Kamala Harris and former President Donald Trump, and their respective answers were both surprising and totally not.
Harris responded to the question by laying out the successes of Biden’s energy policy and in particular, the Inflation Reduction Act (though she didn’tmention it by name). “I am proud that as vice president, over the last four years, we have invested a trillion dollars in a clean energy economy,” Harris noted.
The vice president immediately followed this up, however, by pointing out that gas production has also increased to “historic levels,” under the Biden-Harris administration. This framing, highlighting an all-of-the-above approach to energy, is consistent with Harris’s comments earlier in the debate, whenshe claimed to support fracking and investing in “diverse sources of energy.” Harris went on to reiterate the biggest wins of the Inflation Reduction Act, namely, “800,000 new manufacturing jobs,” and shouted out her endorsement from the United Auto Workers and its President Shawn Fain.
Trump, who earlier in the debate called himself “a big fan of solar” before questioning the amount of land it takes up, started off his response by once again claiming that the Biden-Harris administration is building Chinese-owned EV plants in Mexico (they are not). Then Trump veered completely off topic and rounded out his answer by ranting about Biden (both Joe and Hunter). “You know, Biden doesn’t go after people because, supposedly, China paid him millions of dollars,” Trump noted. “He’s afraid to do it between him and his son, they get all this money from Ukraine.”
Trump’s answer included no reference to climate or clean energy — but it did include a shout out to “the mayor of Moscow’s wife,” so there’s that.