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For fossil fuels, it’s the Not-So-Golden State.
It was a good 2023 for Big Oil. In most places.
Both Exxon and Chevron reported substantial fourth quarter and full-year 2023 earnings Friday — $36 billion and $21 billion for 2023, respectively, their second highest annual profits ever. Both also called out California, however, once one of the cradles of the U.S. oil industry (see: There Will Be Blood) and now its biggest domestic political headache as a place where they’re enduring billions in losses.
While the two oil majors’ issues in California are specific to how they operate there, they are also perhaps a preview — or a warning — of what a full spectrum climate policy could mean for them.
While the Biden administration has done more legislating on climate than any previous administration, it has not done much of anything to impair the supply of hydrocarbons. Instead, the Inflation Reduction Act is largely devoted to subsidizing the supply of non-carbon-emitting forms of energy (and electric vehicles) and making it easier for people to electrify their homes. The upcoming Environmental Protection Agency power plant regulations, meanwhile, are designed essentially to force power plant operators to capture and store their emissions.
All of this would, if it works, increase demand for green energy and decrease demand for fossil energy. But much to the chagrin of many environmentalists, it would do little directly to limit fossil fuel extraction — nor, to the chagrin of more market-oriented environmentalists, would it set a tax on carbon emissions or establish a cap-and-trade system that would act as a tax. As Biden administration officials sometimes point out, oil and gas production has hit record highs under their watch.
California is different. It has a cap-and-trade system, it’s passed restrictions on where oil and gas drilling can occur (although they’re on hold pending a referendum that could overturn them), and permitting for new oil wells has slowed to near zero. Local governments there are often not particularly keen on hydrocarbon infrastructure or drilling, especially offshore.
In its earnings release, Exxon reported a $2 billion “impairment as a result of regulatory obstacles in California that have prevented production and distribution assets from coming back online.” This was a reference to its oil and gas operation off the Santa Barbara County coast, which started pumping in the early 1980s and stopped in 2015, when a pipeline rupture spilled more than 142,000 gallons of oil into the ocean. Exxon has been trying to get out of this business ever since, even lending money to another company to take the project off its hands. However, the deal has been continually delayed thanks to litigation surrounding pipeline repairs, as well as getting state and local approvals to operate again.
For Chevron, which is headquartered in California and maintains an active extraction and refining operation there, the troubles were “higher U.S. upstream impairment charges mainly in California” — emphasis mine.
In an earlier release this year, Chevron previewed losses from its California operations, saying that they were “due to continuing regulatory challenges in the state that have resulted in lower anticipated future investment levels in its business plans.” Combined with writedowns in the Gulf of Mexico, the company reported $3.7 billion worth of charges on its fourth quarter earnings.
Chevron — which operates refineries in both Northern and Southern California — has been in a public dispute with California policymakers over their energy policy proposals, especially around refining. The state plans to ban sales of internal combustion vehicles by 2035 and is working through a proposal to essentially cap profits on refining gasoline in the state. Chevron officials have said that a refining margin cap would make it “really challenging to want to put our money there,” the company’s refining chief Andy Walz told Bloomberg.
California has consistently higher gas prices than other states thanks to its lack of access to a national market (it’s not served by a pipeline network) and special requirements for its gasoline. Today, gas prices are $4.57 a gallon in California compared to $3.15 nationally, according to AAA. If Chevron is right about how California will treat refiners going forward, that gap could grow.
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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.
The Army Corps of Engineers, which oversees U.S. wetlands, halted processing on 168 pending wind and solar actions, a spokesperson confirmed to Heatmap.
UPDATE: On February 6, the Army Corp of Engineers announced in a one-sentence statement that it lifted its permitting hold on renewable energy projects. It did not say why it lifted the hold, nor did it explain why the holds were enacted in the first place. It’s unclear whether the hold has been actually lifted, as I heard from at least one developer who was told otherwise from the agency shortly after we received the statement.
The Army Corps of Engineers confirmed that it has paused all permitting for well over 100 actions related to renewable energy projects across the country — information that raises more questions than it answers about how government permitting offices are behaving right now.
On Tuesday, I reported that the Trump administration had all but paralyzed environmental permitting decisions on solar and wind projects, even for facilities constructed away from federal lands. According to an internal American Clean Power Association memo sent to the trade association’s members and dated the previous day, the Army Corps of Engineers apparatus for approving projects on federally shielded wetlands had come to a standstill. Officials in some parts of the agency have refused even to let staff make a formal determination as to whether proposed projects touch protected wetlands, I reported.
In a statement to me, the Army Corps has confirmed it has “temporarily paused evaluation on” 168 pending permit actions “focused on regulated activities associated with renewable energy projects.” According to the statement, the Army Corps froze work on those permitting actions “pending feedback from the Administration on the applicability” of an executive order Trump issued on his first day in office, “Unleashing American Energy,” and that the agency “anticipates feedback on or about” February 7 from administration officials.
While the statement demonstrates how vast the potential impacts to the renewables sector may be, it also leaves several important questions unanswered. It’s unclear whether each pending permit action that has been frozen applies to its own individual project, or whether some projects have more than one permit pending before the Army Corps, so it is still fuzzy precisely how many projects may be impacted. The Army Corps did not say whether that feedback would lead to the lifting of holds on permitting activity, nor did it explain why the holds were enacted in the first place.
Finally, there’s one big question that still needs answering: The executive order in question focuses on fossil fuel projects and says nothing about renewable energy — no mentions of “renewable,” no “solar,” no “wind.” Why did this order trigger a permitting freeze in the first place? This level of confusion and ambiguity is part and parcel with other statements in the ACP memo, including that guidance and agency perspectives have varied widely in recent weeks depending on who in the government is being asked.
Climate advocates are already pressing the panic button. “This is a 5 alarm fire alert. This could decimate all the clean energy we worked to pass under Biden,” Nick Abraham, state communications director for League of Conservation Voters, wrote on Bluesky in response to my reporting.
I asked the Army Corps for clarity on how the executive order led to a pause on their permitting activity, and we’ll update this story if we hear back.
The leaders of both countries reached deals with the U.S. in exchange for a 30-day reprieve on border taxes.
U.S. President Donald Trump and Mexican President Claudia Sheinbaum announced a month-long pause on across-the-board 25% tariff on Mexican goods imported into the United States that were to take effect on Tuesday.
In a post on Truth Social, Trump said that Sheinbaum had agreed to deploy 10,000 Mexican troops to the U.S.-Mexico border, “specifically designated to stop the flow of fentanyl, and illegal migrants into our Country.” Secretary of State Marco Rubio, Secretary of the Treasury Scott Bessent, and Secretary of Commerce Howard Lutnick will lead talks in the coming month over what comes next.
“I look forward to participating in those negotiations, with President Sheinbaum, as we attempt to achieve a ‘deal’ between our two Countries,” Trump wrote.
In her own statement, Sheinbaum said the U.S. had committed to work on preventing the trafficking of firearms into Mexico.
There has still been no pause on planned tariffs on Canadian imports, which would likely affect the flow of oil, minerals, and lumber, as well as possibly break automobile supply chains in the United States. Canadian leaders announced several measures to counter the tariffs at both the federal and provincial level.
Trump and Canadian Prime Minister Justin Trudeau have spoken today, and are scheduled to do so again this afternoon. Canadian officials are not optimistic, however, that they’ll be able to get a similar deal, a Canadian official told The New York Times.
UPDATE 4:55 p.m. ET: Trudeau announced that he had reached a similar deal that would stave off the imposition of tariffs for a month. Following a “good call” with Trump, Trudeau said in a post on X that he would deploy personnel and resources to his country’s southern border. “Nearly 10,000 frontline personnel are and will be working on protecting the border,” Trudeau wrote. He also said that Canada would have a “Fentanyl Czar” and would “launch a Canada- U.S. Joint Strike Force to combat organized crime, fentanyl and money laundering.”