GWPF Newsletter: Chinese Solar Stocks Plunge As Beijing Pulls The Plug

Is Theresa May Re-Nationalising Britain’s Energy Industry?

In this newsletter:

1) Chinese Solar Stocks Plunge As Government Suspends New Solar Farms, Cuts Subsidies
South China Morning Post, 4 June 2018 
 
2) Is Theresa May Re-Nationalising Britain’s Energy Industry?
Nick Butler, Financial Times, 4 June 2018 

 
3) The New Shale Tech That Terrifies OPEC
The Wall Street Journal, 1 June 2018 
 
4) BMW, Daimler Struggle As Europe’s CO2 Plans At Risk Of Coming Undone
Bloomberg, 1 June 2018 
 
5) Climate Change Lawsuit Sets Dangerous Precedent
RealClearEnergy, 4 June 2018 
 
6) Vaclav Smil: A Critical Look At Claims For Green Technologies
Vaclav Smil, IEEE Spectrum, 3 June 2018 

Full details:

1) Chinese Solar Stocks Plunge As Government Suspends New Solar Farms, Cuts Subsidies
South China Morning Post, 4 June 2018 

Shares in Sungrow Power Supply and GCL-Poly Energy Holdings led Chinese solar power stocks lower in mainland China and Hong Kong on Monday, after the government moved to rein in the expansion of the industry, by suspending the construction of new farms and cutting subsidies in a surprising decision.

Sungrow Power, the country’s biggest maker of inverters for solar and wind power, tumbled by the 10 per cent daily limit to 12.56 yuan in Shenzhen, capping a decline of 23 per cent over the past seven days. LONGi Green Energy, a manufacturer of silicon wafers, also plunged by the same amount to 20.12 yuan in Shanghai.

GCL-Poly, the world’s largest producer of solar wafers used to make solar panels, slumped by 9.2 per cent to HK$0.79.

A joint statement put out on Friday by the National Development and Reform Commission, Ministry of Finance and National Energy Administration said the allocation of quotas for new projects had been halted until further notice, and tariffs on electricity generated from clean energy will be lowered by 0.05 yuan per kilowatt hour, a cut of 6.7 to 9 per cent depending on the region, effective June 1.

Daiwa Capital Markets’ Dennis Ip predicted the move will cut China’s solar power installation by 15 per cent to 45 gigawatts this year. Installation rose to a record 53GW in 2017.

Friday’s announcement is the most aggressive paring back of state support for solar power, and comes close on the heels of another policy announcement last month, which stated that the awarding of all new wind farm development rights would be subject to competitive bidding.

Full story
 
2) Is Theresa May Re-Nationalising Britain’s Energy Industry?
Nick Butler, Financial Times, 4 June 2018 

Stake in nuclear plant would be dramatic change of policy for UK

Last Monday, the board of Hitachi met in Tokyo to consider the future of their proposed new nuclear power plant at Wylfa in north Wales. The Japanese company decided neither to approve nor to drop the plan but to continue the negotiations with the UK government.

As Toshiaki Higashihara, Hitachi’s chief executive, said after the meeting: “No decision has been taken.”
They were right to pause because the deal on the table was weak and inadequate as protection against the risks involved in a project of such scale. Wylfa is set to cost at least £20bn — and, given the record of new nuclear construction, that figure can only rise.

As reported by the Japanese press, at that stage the deal appeared to involve simply a UK government “guarantee” to cover the construction phase of the project, which is when the risks are highest.

But, within days, authoritative reports in the FT and elsewhere indicated that Britain had gone further and decided to make a direct investment of public money into the project.

This would be a dramatic change of policy with many implications.

First, it would mark the reversal of 40 years of a privatisation of the energy sector begun by Margaret Thatcher and Nigel Lawson. Suddenly, the state is back in business and the arguments against other proposed nationalisations, for instance of the railways or energy retailers, are undermined.

Second, taking a direct stake in one energy supplier opens up issues of competition policy. Will the government take shareholdings in other new nuclear projects including Hinkley Point C ? If nuclear, why not offshore wind or gas-fired power stations?

Then there is the question of the use of resources. There appears to be almost no extra money for anything from the National Health Service to defence and security. But suddenly several billion pounds have been found for a single nuclear power station.

Full post
 
See also: Taxpayer bankrolls £15bn nuclear plant at Wylfa in Wales
 
3) The New Shale Tech That Terrifies OPEC
The Wall Street Journal, 1 June 2018 

U.S. shale oil drillers are boosting efficiency with giant pads and walking rigs, lowering prices to a point that could soon hurt exporters like Saudi Arabia.

What doesn’t kill you makes you stronger.

Two years ago, it looked like Saudi Arabia was winning its fight against the U.S. shale oil industry by furiously pumping crude to drive down prices. Some drillers went bust and many more flirted with bankruptcy while oil drilling in places like West Texas and North Dakota collapsed.

The Saudi effort backfired. Instead of killing shale it spurred a wave of innovation that transformed drilling in the U.S. into a highly efficient industrial process, dramatically lowering costs and boosting output. During the next oil bust, it will be the Saudis who have to worry.
“High prices tend to create sloppiness in this industry because people focus only on growth,” says Doug Suttles, chief executive of shale driller Encana. “Downturns make you focus on cost because it’s the only thing you can control—the oil price is out of your hands.”

Meanwhile, something remarkable is happening. The U.S., where production was once thought to have peaked nearly 50 years ago, will become the largest oil producer on the planet by next year.

One region alone, the prolific Permian Basin, recently passed 3.1 million barrels a day of output. Stretching from West Texas to New Mexico, it would now rank No. 4 of the 14 members of the Organization of the Petroleum Exporting Countries and may soon produce more than No. 3, Iran.

The amount of oil being pulled from the ground there is already driving global markets. But what should really frighten energy ministers in Riyadh, Tehran and Moscow is how that oil is produced. The number of drilling rigs now active in the Permian is the same as back in October 2011, yet the region is producing three times as much crude.

Full post
 
4) BMW, Daimler Struggle As Europe’s CO2 Plans At Risk Of Coming Undone
Bloomberg, 1 June 2018 

European plans to tackle vehicle emissions that cause climate change are at risk of coming undone, sending car manufacturers such as Daimler and BMW back to the drawing board to avoid potential fines.



A series of events over the past weeks have highlighted the region’s struggle to contain greenhouse gases and air pollution, wrong-footing automakers including BMW and Volkswagen Group that remain reliant on engines running on diesel.

“It’s safe to say our original premises and plans to meet fleet emissions goals are good for the bin,” said Dieter Zetsche, CEO of Daimler. “We think we can meet them still, but it’s not totally up to us but depends on how the customer decides to act.”

Policies to lower emissions were clouded by the revelation last month by the EU that the amount of carbon dioxide produced by new cars rose last year, reversing at least seven years of steady decline of the greenhouse gas in many countries. A further sign of cracks in the system was the bloc’s decision to resort to suing Germany and five other member states for exceeding air pollution limits.

Finally, in a direct blow to automakers, Hamburg became the first German city to impose driving restrictions on some cars running on diesel — a fuel that produces less CO2 than gasoline but more harmful air pollutants.

If manufacturers fail to comply with emissions rules, they are at risk of projected fines of 4.5 billion euros ($5.3 billion), according to study by PA Consulting.

Full story
 
5) Climate Change Lawsuit Sets Dangerous Precedent
RealClearEnergy, 4 June 2018 
Tristan R Brown

Who is responsible for the costs of building seawalls and other climate change adaptation infrastructure in cities such as Oakland and San Francisco? Is it the taxpayers in those municipalities? The major emitters of greenhouse gases, such as carbon dioxide and methane? Or the companies that have made the emissions possible but have not actually released them?

City officials in California are asking a federal judge to hold only the latter — major oil and gas companies — responsible. By doing so, they risk unleashing a torrent of lawsuits against all manner of companies in the process.
The Bay Area expects to experience increased flooding in the coming decades as global warming causes sea levels to rise. In response, it intends to build infrastructure that will prevent its low-level populated areas from being inundated in the future. This infrastructure is not cheap, though, and city officials in Oakland and San Francisco want those entities that it holds primarily responsible for global warming (BP, Chevron, ConocoPhillips, Exxon Mobil, and Royal Dutch Shell) to pick up the bill under the federal common law tort of nuisance.

Unfortunately for these cities, in 2011 the U.S. Supreme Court ruled that the Environmental Protection Agency, as authorized by Congress — not the courts — has the task of regulating greenhouse emissions. To get around this roadblock, the cities have opted to sue large producers of fossil fuels, such as oil and gas companies, rather than emitters of greenhouse gases, such as electric utilities or drivers.

In the process, their lawyers have advanced a novel legal theory. It goes like this: By extracting fossil fuels from their underground reservoirs and making them available to be burned, oil and gas companies set the conditions for the greenhouse gas emissions that have contributed to climate change; they are therefore liable to the cities for the costs of building seawalls, because they made the fossil fuels’ combustion and ultimate conversion to greenhouse gases possible. This argumentative strategy — focusing on the creation of the conditions necessary for fossil fuels to be combusted — is a way for the cities’ lawsuit to conform to legal precedent. It also threatens to ensnare far more than the world’s largest oil and gas producers who are the defendants in the current lawsuit.

Of course, fossil fuels must be extracted before they can be combusted. But that is hardly the only prerequisite. Oil is most commonly refined into distinct fuel (and non-fuel) products prior to being consumed. The refined fuels are transported to the convenience stores that operate the pumps that move them into the vehicles in which they are combusted. In the case of natural gas, the fuel is distributed to facilities and buildings for use in heat and power systems.

In every case, the fuel is only combusted because numerous other logistics prerequisites have been satisfied in addition to extraction from underground reservoirs. Pipelines were built to transport the fuel to market. Distribution infrastructure was built to transport the fuel to consumers. Combustion equipment such as vehicle engines, gas turbines, boilers, and furnaces were built to convert the fuel into energy. In the case of electricity, transmission and distribution lines were built to distribute the energy to consumers. In the case of refined fuels, road networks and airports were built and maintained so that vehicles could convert the energy into distance traveled. In other words, modern economies depend on energy systems, without which fossil fuels would not get converted into greenhouse gas emissions.

Does this mean that the cities’ lawyers intend to sue all of these other components of the fossil fuel life cycle for climate change damages? It is unlikely. Oakland and San Francisco are well aware of their reliance on fossil fuels, so much so that their original legal complaint specifically states that the cities “do not seek to restrain Defendants from engaging in their business operations” (emphasis in original). Moreover, the cities’ own involvement in the processes of building and maintaining the transportation networks that are required for many fossil fuels to be combusted would quickly make such a maneuver an act of self-harm.

The real concern is with the precedent that this lawsuit would create if successful. The ability to target the entities that create the prerequisites for a nuisance such as greenhouse gas emissions, rather than the nuisance itself, would create a vast number of potential targets, including manufacturers of products such as gas turbines, furnaces, hot water tanks, road construction equipment, automobiles, and airplanes, to name a few. Furthermore, given that greenhouse gases are emitted by a variety of activities other than fossil fuel extraction, including agriculture, forestry, and ranching, many other sectors in modern economies could find themselves affected.

The federal judge who is hearing this lawsuit recognized these threats and asked the cities’ lawyers to explain why they do not believe that all entities responsible for greenhouse gas emissions are liable for the costs of Oakland and San Francisco’s seawalls. Their response was that the lawsuit is only focused on the largest fossil fuel producers. But this ignores the fact that, under federal common law, negligence liability is a question of harm caused — not the size of the entity allegedly contributing to the nuisance. The cities’ lawsuit is novel because it would potentially hold everyone who creates the prerequisites for greenhouse gas emissions liable.

Full essay
 
6) Vaclav Smil: A Critical Look At Claims For Green Technologies
Vaclav Smil, IEEE Spectrum, 3 June 2018 

Green technologies are not yet proved, affordable, or deployable—but even if they were, it would still take them generations to solve our environmental problems

When a bright new idea comes along, it’s easy to imagine a fantastic future for it. Perhaps the best example of this is Ray Kurzweil’s Singularity, scheduled to arrive in 2045, which will supposedly bring“immortal software-based humans, and ultra-high levels of intelligence that expand outward in the universe at the speed of light.” Not to be left behind, a former Google X senior executive says that “everything you see in sci-fi movies is going to happen.” Not just something, mind you, but everything.

Compared with such utterly ahistorical visions, unmoored from reality, the articles gathered in this issue are actually quite tame. They promise only a long-lasting supply of affordable and clean energy—either through nuclear fission or through electricity derived from burning (yes, burning) CO₂—and a surfeit of food from a variety of sources: vertical farms based in cities, crops that will need almost no fertilizer, and environmentally friendly meat substitutes.

Of course, these claims of impending innovation may be seen (although they are not labeled as such) as being largely aspirational—but the benefits would be great if even just a fraction of their goals were realized during the next generation.

At the same time, these claims should be appraised with unflinching realism. I would not presume to offer specific, in-depth critiques of proposed innovations even if I had 300 instead of three pages to work with. Instead, I will just point out some nontrivial complications pertaining to specific proposals, and above all, I will stress some fundamental systemic considerations that are too often ignored. These are not arguments against the need for some form of the techniques that are promoted here but rather cautionary reminders that many of today’s ambitions will not become tomorrow’s realities. It’s better to be pleasantly surprised than to be repeatedly disappointed.

Full essay

The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at www.thegwpf.com.