A tale of two C’s
There were two significant pieces of climate and climate tech news this week:
- Congo: The Democratic Republic of Congo (“The DRC”) is auctioning off land to oil & gas companies for extraction. These sit on invaluable carbon sinks in the form of rainforests & peatlands.
- Congress: In the U.S., out of nowhere, Democrats appear aligned on $369B of climate & energy spending (the most ever in U.S. history) as part of a reconciliation bill (that covers more than climate & energy, too).
The key takeaway is that progress and alignment on climate action is possible, positive, and encouraging. But, what works is highly contingent on the actions in question being good for the economy. Things fall apart when the ask is to ‘strand’ assets and forgo their financial benefit, as in the DRC.
To dig into the why, keep reading!
We’ll start with the bad news.
Earlier this week, the Democratic Republic of Congo indicated its intent to open up an auction for vast plots of land. Today, the auctions for 30 total blocks of land started. 27 feature significant oil deposits, with a further 3 featuring gas. In justifying the auction, the DRC’s minister of hydrocarbons noted “Our priority is not to save the planet,” noting (rightly) that much wealthier nations have increased their reliance on oil & gas to enhance energy resilience this year, too.
There are a few significant red flags here. For one, the lots listed are more than initially anticipated. Nearly a 100% increase, in fact. In May, the DRC had committed to 16 lots vs the current 30.
More importantly, the auctions run somewhat contrary to a deal signed at COP 26 six months ago that included $500M from the U.K. and other European nations to protect the Congo Basin rainforest and peatlands, where the lots that are up for auction in question lie.
Most importantly, if oil & gas companies proceed with extracting fossil fuels from the lots of land the DRC is auctioning off, it will be highly disruptive to Congolese rainforests and peatlands. Peatlands in the Congo Basin are sometimes referred to as the second largest ‘lung’ in the world, after the Amazon rainforest. If they’re not ‘breathing,’ the earth is in trouble.
As we’ve discussed in this newsletter previously, peat is one of the best terrestrial carbon sinks. Project Drawdown estimates that enhanced peatland protection could help avoid 40 gigatonnes of carbon out to 2050.
On the opposite side of the spectrum, drilling for oil and disturbing the peatlands risks setting off reinforcing climate feedback loops by which more emissions enter the atmosphere, further endangering other carbon sinks across the globe.
The good news
Completely out of left field, big-time public sector spending for climate and energy in 2022 is back on. Last week, people still lambasted Joe Manchin for suggesting he wouldn’t support a bill. Now, it appears Senate Democrats may be aligned on $369B of spending as part of the Inflation Reduction Act. To be sure, there’s much more to the act beyond climate and energy measures. But as far as ‘inflation reduction’ goes, the long-term effect of scaling renewable energy is core to that value proposition.
Broadly speaking, the $369B intends to (still somewhat softly) nudge consumers and companies alike away from fossil fuels. It includes:
- Tax and investment credit extensions encouraging consumers to adopt technologies like rooftop solar, heat pumps, EVs, and more
- Tax credits and investment credits for producers of solar panels, wind turbines, EVs, batteries, and to expand their manufacturing capacity
- Methane control fees to reduce leaks across gas supply chains
- Guarantees for loans from the Loans Program Office amounting up to another $250B (not part of the $369B)
- Money for ecosystem preservation, a clean energy technology accelerator, ‘environmental justice,’ i.e. cleaning up sources of and areas of significant pollution, + much more
I’m not going to pretend to be caught up with the bill’s full scope or more fine details. You can read the official summary on climate spending here and find tons of reporting from other climate outlets. Plus, a lot more needs to happen, like voting on and passing the bill.
There are also potentially problematic conditions baked into the bill, too. Like a clause that many renewable energy projects on federal lands also be accompanied by commensurate new leases for oil & gas drilling. Talk about quid pro quo. Further, there’s subsidies for technologies like carbon capture, which may do more to extend the life of fossil fuels than decarbonize.
Still, initial analysis suggests that passing the bill and extending clean energy tax credits could help the U.S. reduce greenhouse gas emissions 40% from 2005 levels by 2030.
Passing this bill would be a watershed moment, from what I can tell and glean from watching other people’s reactions. I haven’t been around in the industry long enough to know (and maybe haven’t been alive long enough in general), but folks are super excited!
As I have started to say (almost no matter the circumstances, but especially today), there’s never been a better time to build in climate tech!
A shout-out is also due to the staffers on the hill who demanded that negotiations on a bill, including climate spending, re-open. Headlines may all talk about Schumer and Manchin, but progress like this doesn’t happen without hundreds and thousands of people.
It would be easy to sit here and decry the DRC for what they’re doing. But it’s also one of the five poorest nations in the world. It’s not hard to see the impetus for wanting to put more cash in the coffers. It could stand to do the DRC’s citizens some good (if appropriately managed).
As it turns out, the $500M deal inked at COP26 wasn’t good enough. Who’s to blame? Not for me to say entirely. Those types of climate’ reparations’ are desperately needed. But it’s more important that they work and are enforceable. Announcements for the sake of putting numbers on the board don’t do much!
Part of the problem is that the systems to facilitate or enable compensation for mitigating emissions or stranding oil & gas assets don’t exist. There should be a ‘price’ the Congolese government could recognize for not disturbing peatlands and forests. So far, no one (presumably besides oil & gas companies) is stepping forward to bid.
We can celebrate the amount of spending being greenlit in the U.S. for climate technologies. In the same breath, from an aggregate climate impact perspective, figuring out how to work across borders with countries like the DRC to protect valuable ecosystems and responsibly develop sectors like metals & mining would be a blockbuster win, too.