Drinking From The Biden ‘Climate Crisis’ Firehose
“Joe Biden signed 45 executive orders in 13 days! The ‘Climate Crisis’ order governs everything about the federal government. It should have made us cry, but instead we found many laugh lines to enjoy. ”
One begins to think the Biden administration believes there are only two branches of government – the executive and the courts. Who needs a legislative branch when the President can merely sign executive orders (EO) mandating changes to laws and the Federal bureaucracy’s procedures? In his first week in office, President Joe Biden signed 40 executive orders – multiple times the number of EOs signed by his four predecessors. For a man who campaigned without spelling out his agenda, people are now seeing it implemented at a blistering pace. Many of the administration’s moves have generated “buyers’ remorse” among voters who endorsed and then voted for Mr. Biden. Increasingly we are hearing: “We didn’t vote for that!”, or “We never thought he would actually do that!” The phrase “be careful what you wish for” seems to be coming true - immediately.
Several Musings’ issues ago, we wrote about the changing language of the climate movement. It progressed from global warming to climate emergency. Now, climate emergency is insufficient justification for radically new government policies. Climate emergency has now morphed into “climate crisis.” To demonstrate the administration’s embrace of climate crisis, President Biden’s EO puts it right up front: “Putting the climate crisis at the center of United States foreign policy and national security.” How much more serious can it be when the government makes climate the center of everything it does? So far, the emphasis on climate crisis has not led to the Biden administration implementing an emergency that would provide it with much greater power over government actions that would otherwise require time and negotiation in order to secure bipartisan political support. But as the administration wrote: “international engagement to address climate change – which has become a climate crisis – is more necessary and urgent than ever.” It is on this agenda that the Biden administration wants to be welcomed back onto the global stage. Authoritarian rule has now been embraced here, which probably fits with the views of other world leaders.
We could go on quoting from the 26-page White House document about the need for U.S. international leadership to drive world changes to comport with the goals of the Paris Agreement, but readers would probably become weary of hearing the examples. As we have pointed out previously, only two countries – Gambia and Morocco – are on track for meeting their carbon emissions reductions targets under the Paris Agreement. Never mind that the United States has been leading the world’s nations in cutting its carbon emissions in line with its stated reduction goal.
We were shocked to hear Mr. Kerry, the newly created Special Presidential Envoy for Climate, admit to reporters, during a press briefing preceding the signing of the climate change EO, that even if the United States reduced its carbon emissions to zero, there would be no impact on the world’s climate. What a predicate for the signing! The reason why whatever the U.S. does to limit its carbon emissions, including getting to zero, will have little impact is because 90% of carbon emissions occur outside U.S. borders. Wait a minute, are we about to upend our economy and everyone’s life, potential employment, and cost of living for a zero benefit? How does that become a policy in the best interests of Americans? Sounds more like a divisive policy than a unifying one.
As we read, and re-read, the climate EO, we found several laugh lines. The first was in Section 205 dealing with federal clean electricity and vehicle procurement strategy. The directive is for the bureaucracy to “develop[ing] a comprehensive plan to create good jobs and stimulate clean energy industries by revitalizing the Federal Government’s sustainability efforts.” In our reading of the document, this was the only time where “jobs” were described to be “good” and not “union.” Based on the rest of the document, we guess only union jobs count. We kept looking for the penalty for creating “non-union jobs”? Fortunately, there did not seem to be one. But maybe employers creating non-union jobs are obligated to create a union. We are awaiting the government’s next labor market report as we expect it will only focus on union jobs. If the Biden policy works, the labor force and employment figures will grow dramatically!
Using all the appropriate procurement rules, the goal of the Biden administration under this section is to develop a “carbon pollution-free electricity sector no later than 2035,” and change over the government’s fleet of vehicles into “clean and zero-emission vehicles for Federal, State, local, and Tribal government fleets, including vehicles of the United States Postal Service.” We understand the physical limitations of achieving an electricity grid powered exclusively by renewable fuels, however, making it a goal is only acceptable if the true cost of the switch is less than the benefits. Moreover, can any of this be achieved in 15 years? The analysis is seldom done – and only seen in footnotes and appendices, if at all.
Furthermore, electric vehicles cost more to make than internal combustion engine (ICE) cars. Will the government abandon its practice of purchasing the lowest-cost option presented when purchasing government vehicles? How will citizens feel about voluntarily paying more for a vehicle that could be purchased for much less? The purchase options are further restricted by the Biden requirement that our government Buy American! That means these vehicles must be American made, meaning built in the U.S. or Canada, and by union workers. Tesla has a non-union workforce, eliminating it as a potential supplier, even though their vehicles are assembled from 50% American-made parts. GM, which is unionized, makes the electric Bolt. However, only 24% of its parts are made in the U.S. or Canada, which qualifies as domestic under the American Automobile Labeling Act. Nissan’s Leaf, which is built in a non-union plant in Tennessee, uses 35% domestic parts, so it has two strikes against it. Ford, who introduced the all-electric Mustang Mach-E this year to rave reviews, suffers from the fact these cars are built in Mexico and China. It sounds like the Biden administration will be waiting a while before it is able to achieve its mandate. Or, possibly Mary Barra, CEO of GM, which just announced it will stop making internal combustion engine cars by 2035, will get a pass because of this virtue-signaling. We are watching for the first waivers to this policy. Then we will know that it is really designed to reward union support of the Democrat Party.
Another hurdle for implementing this policy is that government vehicle purchases are not uniform. The U.S. government has a vehicle fleet of 645,000 units, of which 3,200 are electric. The government reportedly purchases 50,000-60,000 vehicles a year, which, if all were electric, would have a significant impact on the industry’s current annual sales of 300,000-350,000 vehicles. That suggests manufacturers might be willing to jump through hoops to get their vehicles to qualify as American-made, but who knows how the supply chain needs to be changed, and how long it might take. Might this explain GM’s announcement of ending ICE vehicle production by 2035? An additional challenge for automakers is that the government’s annual vehicle purchases encompass a wide range of vehicle types, extending from passenger cars to heavy-duty vehicles. Meeting the non-passenger vehicle demand may require a longer time frame than for meeting the passenger car demand.
Another laugh-line in the Biden climate EO was in Section 217. It deals with: “Empowering workers through revitalizing energy communities.” The text reads:
It is the policy of my Administration to improve air and water quality and to create well-paying union jobs and more opportunities for women and people of color in hard-hit communities, including rural communities, while reducing methane emissions, oil and brine leaks, and other environmental harms from tens of thousands of former mining and well sites. Mining and power plant workers drove the industrial revolution and the economic growth that followed, and have been essential to the growth of the United States. As the Nation shifts to clean energy economy, Federal leadership is essential to foster economic revitalization of and investment in these communities, ensure the creation of good jobs that provide a choice to join a union, and secure the benefits that have been earned by workers.
What is interesting is the acknowledgement of the contribution of the workers in mining and power industries that drove the industrial revolution. That revolution produced dramatic economic development for the United States, as well as the rest of the world, the technology for improving living standards, increased longevity, and rising incomes for well over 100 years. We are now pursuing a transition to a “clean energy economy” and the Federal government must become the driver? This is an admission that traditional market forces likely will not drive the transition in the direction policymakers want it to go. Why? Because it is socially and economically disruptive – meaning that lower income groups will be burdened with higher living costs and possibly fewer job opportunities, while other well-paying jobs are transitioned to lower-paying ones. If the next energy transition – as in all previous transitions – were to lead to cheaper, more energy-intensive fuels that require less land and labor to produce, it would be happening. The need for a nanny-state to oversee this energy transition confirms that the future will be more expensive and more disruptive.
We are constantly told that the cost of renewable fuels is coming down and will soon be cheaper than existing fossil fuels. These projections usually cover the next 5-10 years. The projections target solar and wind power, as well as the cost of electric vehicle batteries. Lower solar costs are tied to expected reductions in the cost of solar panels, but as Peter Tarkanian of Arc Resources in Calgary, Canada pointed out, these panels are made from silicon, which comes from sand, one of the most plentiful commodities in the world. Thus, there is no supply shortage. The issue is the industrial business strategy of China who drove solar panel prices down to stop technological advancements, enabling it to dominate the global market and drive competition out. Wind energy costs have benefitted from larger wind turbines that reach into stronger and steadier winds – producing increased power per unit. However, there is a physical limitation on how high wind turbine utilization can go. Both solar and wind power required significantly greater land for the same energy output from oil and gas wells, plus both energy sources create significant recycling challenges, especially since they last only a fraction of the life of fossil fuel power plants.
Electric vehicle battery cost reductions are tied to increasing volumes of power cells that can be incorporated in vehicles. The over-arching issue for batteries is their dependence on rare earth minerals. Extracting increased quantities of these minerals will require new mines with environmental challenges and long lead times to develop. Also, many of the mineral deposits are in countries that represent political and social challenges. Lastly, we don’t know if, whether or when battery chemistry might change that could provide both a technological, as well as economic step-change that could revolutionize the battery industry. Currently, the identified rare earth minerals deposits are concentrated in a few countries around the world, with China dominating most of them.
As we contemplate the push to electrify transportation, interesting news came from Elon Musk, CEO of Tesla. The company announced that its production plan for its electric Semi heavy-duty truck remains in low gear because the special battery cells needed are in short supply. The Semi was announced in 2017 with first deliveries scheduled for 2019. That timetable has been pushed back by two years as a result of battery-cell supply constraints. Mr. Musk says that Tesla is “extremely confident” about its ability to produce long-range trucks with batteries. The Semi is projected to have a range of 500 miles, but it requires five times more battery cells than Tesla’s passenger cars. “But it would not sell for five times what a car would sell for,” said Mr. Musk on a recent earnings call. “So, it would not make sense for us to do the Semi right now, but it will absolutely make sense for us to do it as soon as we can address the cell-production constraint.” The economics of batteries for the Semi highlight the challenge facing this segment whose customers are focused on cost and performance measurements.
The climate change aspirations of the Biden administration are admirable. Squaring them with the reality of the cost of respective energy sources, their availability for meeting today’s economic and societal needs, and the scope of applicability of renewable fuels is impossible. Considering Mr. Kerry’s pronouncement, one must ask: What happens if we reach zero emissions and nothing changes about the climate, yet Americans are poorer for the effort? There will not be a politician alive willing to accept the blame. We can hear the refrains now: “It wasn’t on my watch!”