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UNDERSTANDING THE NEW COST-BENEFIT ANALYSIS RULES: The changes the White House wants to make to its cost-benefit regulatory guidance are another means to boost President Joe Biden’s climate agenda as they would put a higher value on the benefits of climate change mitigation.
How it will work: OMB’s Office of Information and Regulatory Affairs proposed changes last week to Circular A-4, a highly technical document informing the methodologies agencies use to conduct regulatory analysis on rulemakings and so forth. The current OMB guidelines have been in place since 2003.
Revising the guidelines was a Day One priority for Biden, who directed OMB to modernize the regulatory review process in light of “undeniable reality and accelerating threat of climate change.”
Beyond the borders: A major component of OMB’s proposed update: It encourages agencies to consider effects experienced by noncitizens residing abroad in certain contexts when contemplating a regulation’s costs and benefits rather than confining it to the United States.
The guidelines currently in place provide that agencies’ scope of analysis should focus on effects to citizens and residents of the U.S. and that any consideration of effects beyond U.S. borders be reported “separately” from a primary analysis. The Trump administration limited use of international impacts as a leading consideration and sought to hew closely to those guidelines.
OMB’s new draft, however, provides situations where it can be appropriate to consider the international effects of a given regulation, say a crackdown on inefficient air conditioners. One of those situations is when “regulating an externality on the basis of its global effects” could influence other countries to do the same.
“It perfectly describes climate change,” Brian Prest, an economist with Resources for the Future who’s been pushing for OMB’s reforms, told Jeremy.
The proposal also suggests performing international impacts analysis whenever “international or domestic legal obligations require or support a global calculation of regulatory effects.” Think of compliance with the Paris agreement.
Changes to discount rates: Agencies use these as a way to convert future benefits and costs into present values. In the context of climate change, discount rates are used to monetize the value of changes to greenhouse gas emissions resulting from regulatory changes.
“We expect the future to be wealthier, so maybe we should value $1 of cost to a future, wealthier society less than $1 cost today,” Prest said of the philosophy behind discount rates.
Current guidance provides for use of a 3% discount rate at the low end and 7% at the high end. OMB’s update would set the discount rate at 1.7% – and the lower the discount rate, the higher the benefits are calculated to be.
For example, the climate benefits associated with our air conditioner rule were calculated by DOE to be $2.51 billion at a 3% discount rate. A 1.7% discount rate, all else being equal, would put the value of the regulation even higher.
“This update is more broad than just climate but it just so happens that it has the biggest implications for climate,” Prest said, “because discounting is so much more important for climate issues because of the [persistence] of CO2 in the atmosphere.”
The longer view: The Biden administration is pursuing a suite of regulations to make technologies more energy efficient and to limit pollution from everything from power plants to automobiles and oil and gas operations, all of which come at a cost to industry where operators may shut down rather than comply. That’s expected with EPA’s coal plant rules in particular.
Chad Whiteman, vice president of environment and regulatory affairs at the U.S. Chamber of Commerce, said OMB’s proposal represents significant changes that are effectively putting a thumb on the scale and “ballooning the benefits” so the administration can justify much more stringent regulatory requirements.
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TESLA TO BUILD NEW BATTERY FACTORY IN CHINA: Tesla and Elon Musk are expanding commercial ties with China at a time when there’s a great deal of political interest in cutting them. The company announced that it will build a new factory in Shanghai to produce its Megapack battery storage products.
The company, which already has a large vehicle manufacturing footprint in Shanghai, tweeted a photo of a signing ceremony for the facility over the weekend. It said the factory would be capable of producing 10,000 Megapacks per year.
China is a massive market for Tesla, making up for 22.3% of its revenue in 2022. Its Shanghai factory has capacity to produce more than 750,000 vehicles annually and is its main vehicle export location.
TOP CHINESE SOLAR MATERIALS LOOKS PAST U.S. FOR FIRST FOREIGN EXPANSION: A top solar material producer is looking to build its first foreign factory outside of China, but could pass on the U.S. due to high operating costs of doing business there––even after the billions of dollars of clean energy spending included in the Inflation Reduction Act, the company’s CEO said.
GCL Technologies joint CEO Lan Tianshi, whose company ranks as the world’s second-largest polysilicon manufacturer, told Bloomberg that developing a factory in the U.S. remains five times more expensive than in China, and thus could play second fiddle to other alternatives. Other regulatory requirements also remain a deterrent, he said.
U.S. policies “are attractive, but not attractive enough,” he said. GCL’s position is a marked shift from the other top three solar equipment manufacturers in Beijing, which have all announced plans for new factories in the U.S. following the IRA’s passage last summer.
Tianshi said a final decision is still pending, but that GCL is focusing right now on areas such as Europe, the Middle East, and BRICS nations outside of China––Brazil, Russia, India, and South Africa.
He said the company plans to make an announcement on the planned location by the end of the year.
INDONESIA TO PROPOSE LIMITED CRITICAL MINERALS FREE TRADE DEAL WITH U.S.: Indonesia is slated to propose a free trade agreement with the U.S. for some critical minerals, as it seeks to leverage its exports of certain materials, such as lithium, nickel, and cobalt, which are all critical in the EV battery supply chain.
Indonesian minister Luhut Pandjaitan said during a press conference that Jakarta will propose the limited free trade agreement with Washington during his visit later this week.
While in the U.S., Pandjaitan will also meet with Ford and Tesla executives to discuss the deal, which he told reporters is similar to an effort Japan and the U.S. struck on EV battery minerals last month. “It’s the same in essence, that for critical minerals there will be free trade with requirements on processing, such as for nickel, aluminum, cobalt, copper,” he said.
Jakarta has sought to use its nickel reserves – which are the largest in the world – to attract new investments from the U.S. and other Western countries seeking to reduce their dependence on China as they build out their own EV supply chains.
ICYMI: EXXON EYES SCOOPING UP BIG INDEPENDENT PIONEER: ExxonMobil is reportedly exploring the possibility of acquiring Pioneer Natural Resources or some other large independent oil and gas producer as the major looks to further firm up its traditional business.
Exxon has been holding “preliminary talks” with Pioneer about an acquisition, the Wall Street Journal reported Friday. Pioneer has a market cap of some $49 billion.
Exxon and others of the integrated majors are keeping their eyes fixed on oil and gas, with an increasing focus internationally on energy security and recognition by top American and European officials fossil fuel demand will persist for decades.
Like Chevron, Exxon is targeting its U.S. growth in the Permian, where Pioneer’s assets are located. Pioneer is predominantly an oil producer, moving 350,000 barrels of oil per day to the Gulf Coast.
The company draws between 10% and 15% of its revenue from gas but is looking over the longer term to expand its reach in the gas market and ride the wave of global LNG growth, president and COO Rich Dealy told Jeremy on the sidelines of CERAWeek last month.
NUNS ACCUSE CITIGROUP OF MINIMIZING ITS ROLE IN FOSSIL FUEL PROJECTS: The Sisters of St Joseph of Peace filed a shareholder resolution calling on Citigroup’s board to report its role in the Enbridge Line 3 and Line 5 pipeline reroutes. Citi has told shareholders to oppose the resolution.
The congregation and its co-filers, also religious groups, cited concerns about indigenous rights affected by the pipeline projects, and requested Citi’s board to report on what it has done so far to help protect the communities, the Financial Times reports.
The order of nuns has only a small financial stake in the bank––but their efforts represent a growing coalition of activists and shareholders who have sought to stop banks’ investments in fossil fuel projects via general corporate financing of companies like Enbridge.
The Rundown
NPR Businesses face more and more pressure from investors to act on climate change
Politico Europe must resist pressure to become ‘America’s followers,’ says Macron
Financial Times In Scotland’s oil and gas capital, uncertainty clouds the green transition
