The Politics of the U.S. Energy Transition
Permitting Reform, Mining, and the Curious Case of Elon Musk
As the domestic and global climate/energy policy narrative shifts from climate change (recognizing anthropogenic impacts on the environment) to energy transition (fixing the problem while fostering economic growth, maintaining energy independence, and calibrating geopolitical factors) the challenge of cobbling together a transition policy is now unavoidable. Lawmakers will need to make some tough proactive decisions now or wait until a domestic energy crisis forces their hand and results in a rushed and incomprehensible “solution.”
Permitting reform, mining for essential resources, and changing attitudes toward Tesla’s Elon Musk serve as three examples of how domestic politics today will impact the future of U.S. climate mitigation efforts, energy affordability and reliability, and economic growth. If I had to unify and encapsulate all three issues into one governing theory, I would probably use a crass but poignant quote from the late Hal Holbrook’s character Lou Mannheim in the 1986 film “Wall Street.” Mannheim admonishes Bud Fox, an insider trader with hopes of becoming a humanitarian once he’s made his money, by telling him, “You can’t get a little bit pregnant, son.” In public policy, much like in life, we cannot have it both ways, yet many involved in the energy transition debate are striving for an impossible compromise.
Permitting Reform
Both renewable energy and fossil fuel industry leaders recognize the necessity of permitting reform. The World Resources Institute summarizes how the lack of reform impacts renewable projects:
Meanwhile, one analysis found that the project build time — including permitting, siting and construction — for utility-scale solar and wind facility projects averages four years. Permitting alone can take years before construction can begin. Transmission lines, which are needed to increase grid resiliency and bring wind and solar energy to their point of use, can take around 10 years to complete — substantially longer than the time needed to develop wind and solar projects.
Wood Mackenzie makes the case for permitting reform for fossil fuels:
Natural gas is the other sector that could be a significant beneficiary of permitting reform. In Appalachia, the most prolific gas-producing region in North America, production growth is being constrained by a lack of additional takeaway capacity, after several pipeline projects were blocked.
Over the coming decade, we expect natural gas production to grow by 83% in the Permian Basin of Texas and New Mexico, but by only 18% in the northeastern US.
Senator Manchin’s plan includes a specific provision to advance one project to carry gas from Appalachia: the Mountain Valley Pipeline, which is 95% complete but has been held up in court. That pipeline runs from West Virginia into Virginia, over a distance of about 300 miles, and when in service should help to ease the northeastern gas transport bottleneck. Permitting reform could also help other pipelines out of Appalachia get built.
Permitting reform failed last year, but already bipartisan activity in both the House and Senate has set the table for Congress to revisit the issue. California House Democrat Scott Peters sums up the political stumbling blocks nicely:
“I think, on the conservative side, they’ve always wanted to reform processes to get to answers faster,” said Peters, “and I think, now, if you’re an environmentalist, you have to be concerned that we don’t have much time to build all these things we have to build … solar, utility-scale solar, public transportation — we have to build things a lot faster, and that’s going to require taking a look at permitting reform. If you’re a climate activist, you have to acknowledge it’s time to look at that.”
So, the necessity of permitting reform is clear and there is a bipartisan appetite for it. Will climate activists and their Congressional contingency “acknowledge it’s time to look at that,” as Rep. Peters suggests. Not likely. When permitting reform failed last year, the media assigned most of the blame to Republicans. But, here’s what 750 environmental groups said about permitting reform:
“while we acknowledge the importance of accelerating the deployment of renewable energy, that should not come at the expense of gutting bedrock environmental laws.”
Herein lies the problem with viewing the energy transition solely through the lens of the environment. If these 750 environmental groups have their way, there will be no energy infrastructure projects built in this country (renewable or fossil fuel). The acknowledgement of the importance of accelerating renewable energy immediately followed by an absolute that makes acceleration impossible is the very definition of “trying to get a little bit pregnant.”
Permitting reform will happen out of shear necessity. The question is whether Congress ignores an incoherent fringe that cannot be satisfied and gets it done now thoughtfully or waits until a crisis and gets it wrong.
Mining
A transition to maximizing the use of solar, wind, and batteries obviously cannot succeed without the raw materials to manufacture them. Without these materials, renewables are a non-starter. Without vast resources of these materials, the U.S. is setting itself up for a massive energy crisis. Here’s a glimpse at the resources renewables require along with the countries that have the most of them (courtesy of IEA):
And here are the top producers of the minerals essential for the success of solar, wind, and batteries:
Zinc: China
Silicon: China
Rare Earth Metals: China
Cobalt: Congo
Lithium: Australia (China also a major producer)
Nickel: Indonesia
Copper: Chile
Graphite: Turkey/China
Logically, one might think that the U.S. better start maximizing its supply of these resources. Congress has started debating the issue, the following article is from today (Bloomberg):
House Republicans, leery of Democrats’ climate policies, are pushing an alternative agenda: reducing US reliance on foreign-sourced critical minerals for everything from green energy to military equipment, Kellie Lunney reports.
“This country would be in dire straits” if adversary nations stopped selling the US critical minerals, Pete Stauber (R-Minn.), chair of the House Natural Resources Energy and Mineral Resources Subcommittee, said in an interview. “We need to move on this, and keep the safety and security of this country in the palm of our own hands.”
Democrats are skeptical of new mining in the US because of concerns over environmental pollution and resource degradation, but Republicans have said with the advent of smarter technology, mining can be done responsibly—protecting the environment while also boosting domestic production. That argument may help get some bipartisan support for the legislation.
The divisions will be on display Tuesday as two Energy and Commerce subcommittees vote on 16 energy bills, some related to critical minerals. One Republican measure (H.R. 1068) seeks to strengthen the domestic critical mineral supply chain and reduce dependence on imports.
A House Natural Resources subcommittee also on Tuesday will hold a hearing on Stauber’s legislation (H.R. 209) that would expedite permitting for mining on federal lands. Stauber’s bill—along with a bill from Rep. Bruce Westerman (R-Ark.) to increase transparency, and Rep. Garret Graves (R-La.) to streamline reviews of energy projects—will be offered for inclusion into the larger permitting and energy package Republicans are hoping to pass on the House floor, a committee aide said.
We need the resources for renewable energy to succeed but the problem, according to Democrats, is “environmental pollution and resource degradation.” Presumably, House Democrats understand the need for these resources. Apparently, the consequences of extracting these materials are unacceptable. Once again, the climate activist contingency in Congress wants to get a little bit pregnant. If they want renewables to succeed, extracting the materials to manufacture them is a rather critical part of the process. Although the fringe’s arguments are not devoid of all logic. Stopping renewable and fossil fuel projects and the extraction of materials necessary for both would indeed lower GHG emissions. Preventing the mining of essential resources and necessary permitting reform for the energy transition are not policy positions, they are a failure to grasp climate, energy, and economic realities.
The Curious Case of Elon Musk
Elon Musk has always had a reputation of being mercurial. For some insight into Musk and his work at Tesla, I highly recommend Tim Higgins’ “Power Play.” Musk enjoyed almost a cult-like following, which is not meant pejoratively at all. Steve Jobs and Warren Buffett have cult-like followings, and betting against them would have been a huge mistake. However, the recent narrative around Musk has devolved from mercurial to “crazy.” I think it is worth briefly exploring this.
Last week, I read a report about Ralph Nader attacking Musk as “giant corporate welfare king.” Musk punched backed, detailing how Tesla is funded and a government loan Tesla paid back nine years early. I am less interested in what Nader is saying, because he has never created any wealth and hates capitalism, and more interested into why he’s saying what he is saying.
Musk is taking a lot of shots from the political left. From Sen. Elizabeth Warren to President Biden not inviting the world’s most successful EV manufacturer to the White House, it’s clear Musk is in the crosshairs of the left. Musk is known not to support unions, encouraged voting Republican on Twitter, and taken positions on speech that contradict leftist purity tests. I am not saying I agree with everything Musk says, or even understand it, but there seems to be a somewhat coordinated campaign to discredit him as someone fit to lead the EV industry. Here’s the 2022 global EV sales to provide readers with some idea of precisely what Musk has achieved:
Global Battery Electric Vehicle Sales (2022)
A couple items of note from this data. First, BYD (China) is catching up fast, and Volkswagen is a serious player in the market at well. Second, legacy U.S. automobile manufacturers are absent from the top three. Domestic automakers tried to get the jump on the EV market. Back in 1996, GM introduced the EV1. Environmental lore would tell you that GM killed the project to promote gas guzzling SUVs. In reality, the EV1 costs $1,000,000 to develop fully loaded, seated two passengers, and went 50 miles per charge. GM’s first foray into EVs makes Musk look a lot less “crazy” than his detractors want people to believe.
Investors evaluating the long-term prospects of Tesla generally fall into two extreme camps. The Cathie Wood (ARKK) argument seems to be that it will be clear sailing for Tesla to dominate the domestic market and maintain a strong global position as well. I am not sure I believe that, primarily because I worry that Musk’s personality and beliefs may create political enemies that impede his business. In short, will politicians let a CEO who does not support unions and does not use car dealerships take over the domestic auto industry? I doubt it, but I hope the market is left to decide that.
The second camp argues that domestic automobile manufacturers will catch up to Musk and drive him out of business through scale and affordability. With a track record of 30 years of failure in the EV space, why would anyone believe this? Plenty of investors have shorted Tesla stock based on this thesis, and with the exception 2022, they all bled to death. The point here is that politics is going to play a major role in determining which company emerges as the dominate long-term winner in the EV space. Despite his unconventionality, Musk’s performance speaks to his fitness to lead Tesla. Period.
Of course, without the mining of materials there won’t be any winners in the EV space. And without permitting reform the U.S. will face a major energy crisis. Neither is a question of bipartisanship, it’s simple practicality. There needs to be a recognition and rejection of the “paralysis by analysis” strategy of environmental extremists so necessary renewable and oil and gas projects can move forward soon and let markets determine the winners.
John P. Grant is the Founder of Diogenes Group of Washington. The opinions expressed are his own. To learn more about Diogenes Group of Washington’s services, visit www.DGWashington.com
To contact John, email him at John.Grant@DGWashington.com