The Inflation Reduction Act of 2022 // West London's Grid Is Too Weak For More Housing // High Natural Gas Prices May Lower All Boats

The Inflation Reduction Act of 2022

Senator Joe Manchin (D-WV) surprised everyone late Wednesday night by reviving the climate deal everyone thought he'd killed. Behold the Inflation Reduction Act of 2022.

The language on what it's providing in terms of investment and production tax credits is still rough and confusing. But Kelly Martin over at Norton Rose Fulbright has provided the clearest distillation of the bill.

The deal includes $369 billion for energy and climate expenditures. It's a far less ambitious bill than Build Back Better and that's a good thing. "In addition to cutting the tax credit subsidy for wind energy and other renewables by 80%," writes Michael Shellenberger, "it phases it out at the end of 2024, and makes all future tax credits technology-neutral. And the legislation does not include tax credits for new transmission lines, many of which could cut through sensitive ecosystems, such as the Nebraska Sandhills, and are required for a significant expansion of renewables."

The bill also keeps the Department of the Interior from handing out offshore wind leases in the Outer Continental Shelf without carrying out an offshore oil and gas lease sale the year prior. "That oil and gas lease sale must also cover at least 60 million acres," reports the Washington Examiner.

The bill will also barely put a dent in reducing emissions, as Roger Pielke has pointed out. It also contains undesirable things like putting taxpayers on the hook for 30% of renewables' grid connection up to 5 MW. Another curious feature of the bill is the amount of money it would dole out to nonprofits working on climate resilience issues. One would hope Republicans would get hip to what seems to be a cash transfer to Democratic-sympathetic organizations unaccountable to the public. You can search the word "nonprofit" in the document here.

Whether the bill will pass and what impact it will have on inflation if it does remains to be seen.

West London's Grid Is Too Weak For More Housing

Developers in west London may not be able to build new homes for over a decade because the grid has run out of capacity.

"The Greater London Authority wrote to developers this week warning them that it might take more than a decade to bulk up grid capacity and get developments under way again in three west London boroughs — Hillingdon, Ealing and Hounslow," reports the Financial Times.

Those three boroughs make for 11% of London's housing supply. It's not just the energy crisis putting the strain on the UK's grid causing these problems. Another culprit is the amount of power-hungry data centers that have been sited near the boroughs.

London is one of the wealthiest cities in the world. It's a stark portrait: no juice, no growth.

The Russian gas cut has made the picture darker still. The UK is in for a rough winter. "Average power bills are set to rise to just over £500 ($603.30) per consumer in January, more than three times last year’s level, according to analysis from BFY Group Ltd.," reports Bloomberg. "That may ease slightly with lower consumption in February and March, but will still remain far above energy costs in recent years."

“Huge swathes of the British public aren’t going to be able to afford their bills this winter,” said BFY senior consultant Gemma Berwick. “Average families with two working parents will be in fuel poverty.”

The UK grid operators are already expecting some tight spots this December.

High Natural Gas Prices May Lower All Boats

Natural gas prices in America are the highest they've been in years. Post-covid demand rebound, coupled with years of under-investment and America's new role as Europe's LNG supplier, has been driving prices to new heights. The danger is that this will redound across the economy.

"Analysts said the bump in natural gas prices will have long-term impacts on the U.S. economy as the fuel’s high costs push up summer electric bills and winter heating costs, reports E&E, "as well as the price of everything from food to plastics."

We use fossil fuels for so many things that it can be difficult to appreciate the danger high prices for a variant poses for multiple essential sectors.

Oil refineries (in addition to other heavy industries) need natural gas just as heating and our electricity system do. In fact, natural gas is our grid's top fuel. So while swapping out a gas-fired heater for an electric heat pump might shave off some gas consumption, odds are gas is what'll be behind the juice flowing into the heat pump.

"Natural gas prices have risen faster this year on a percentage basis than crude oil, gasoline or diesel," E&E continues. "The benchmark U.S. price topped $9 per million British thermal units on Tuesday, more than double the price last summer, as Russia cut back shipments to European countries and the European Union’s members agreed on a plan to ration their own gas use."

Realists understand we need faster permitting and more pipeline capacity ASAP.

Fabulists think things like this:

“For renewables, you know what the cost is,” Grant Smith, a senior energy policy adviser with the nonprofit Environmental Working Group told E&E. “You have the capital cost, the maintenance costs are generally lower, and you don’t have to worry about these volatile fuel prices. From that perspective, it would be a far less risky investment from the standpoint of natural gas price volatility.”

But of course, all renewables are made with fossil fuels. Not only that, renewables need natural gas to back them up as it's rapid enough to catch renewables when they fall off the grid.

If realism ever becomes more prominent than fabulism it will be because enough pain has been applied. But there's no guarantee--people hate to be wrong and pain can turn people's heads from the truth right as it puts it in front of them.

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Conversation Starters

• China just claimed its first offshore shale and oil gas discovery. "The discovery, at the Weiye 1 wildcat well, the first shale well China has ever drilled offshore, could be a game-changer for the country’s dependence on oil and gas imports," reports Oilprice.com

• New York's offshore wind aspirations have a grid connection problem. “While all states with OSW targets have acknowledged the issue with transmission, both establishing connections offshore and upgrading the infrastructure onshore, there seems to be a lot more talking about it and a lot less activity around it,” Samantha Woodworth, a senior research analyst for North American wind at Wood Mackenzie, told E&E.

• In two years, Howard Energy Partners and Eagle Ford Midstream plan to double their capacity to the Agua Ducle Hub. " TheAgua Dulce Hub is particularly well connected to the Mexico market, with interconnects with NET Mexico, Valley Crossing, and Kinder Morgan Tejas, all of which flow gas to the US-Mexico border," reports SPG.

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