Senate Minority Leader Mitch McConnell R-KY speaks to the media after a Republican policy luncheon … [+] at the US Capitol in Washington, DC. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)
AFP via Getty Images
Republicans are expected to gain enough seats in the November 8 midterm elections to capture majorities in both chambers of Congress. A shift back to Republican control could complicate President Joe Biden’s energy policy priorities, but it would undoubtedly provide a boost to energy security advocates.
The Biden administration’s energy policies have prioritized a climate agenda that has contributed to supply scarcity and soaring costs for consumers. The White House’s answer to the energy crisis has so far been to attack America’s oil and natural gas producers, demanding increased production and threatening higher taxes.
Such bully-pulpit leadership from the White House isn’t enough to calm energy markets that are skittish over runaway inflation, Russian aggression in Europe, a standoff with China, and a global pandemic that won’t go away.
Current polling shows Republicans with an 84 in 100 chance to take back the U.S. House of Representatives, according to polling website FiveThirtyEight. The battle for control of the Senate is tighter, with Republicans holding a 52 in 100 shot of winning control of the upper chamber.
While Republican candidates have been gaining in the polls as Election Day approaches, the most likely outcome is a closely divided Congress with small Republican majorities. But even slim Republican majorities can create headwinds for President Biden’s agenda.
Under Biden’s presidency, retail gasoline prices surged to a record $5 a gallon in June. Prices at the pump are about $3.75 a gallon today, which is still 60% above where they were when Biden took office on January 6, 2021. Gas prices are poised to push higher before the end of the year due to tight global supply and rising geopolitical risks, including the Ukraine war and mounting sanctions on Russia, a top oil and gas producer.
It’s not just the price of gasoline that’s a problem, though. The diesel situation is even worse. Meanwhile, the U.S. Energy Information Administration (EIA) expects heating costs to soar this winter – with households forecast to spend nearly 30% more for natural gas and heating oil and 10% more for electricity.
Republicans are expected to upend Biden’s anti-fossil fuel agenda, which has seen the President recently threaten a windfall profit tax on domestic producers that would hamper investment in new oil and gas supplies.
Biden doesn’t have the political support in Congress now for such a tax, never mind when a new legislature convenes with increased Republican membership.
Biden administrators at the Environmental Protection Agency (EPA), Federal Energy Regulatory Commission (FERC), and Securities and Exchange Commission (SEC) have been critical of the domestic oil and gas industry. They have slow-walked new oil and gas lease sales, blocked drilling permits, and slowed approvals of pipelines. Such moves have created an anti-investment atmosphere in the traditional energy sector.
As the election approaches, Biden has grown more desperate to reduce consumer prices at the pump. The White House has drained the Strategic Petroleum Reserve (SPR) – America’s emergency oil stockpile – and courted oil-producing countries with horrible human rights records that promote terrorism.
Somewhere along the line, the President forgot that America is the world’s largest oil and gas producer – with a far better track record of producing energy in an environmentally responsible way than Iran or Venezuela.
Even with control of the House, Republicans could challenge the White House’s energy policies and push for a return to the energy priorities of the previous administration.
That includes the White House’s fraught relationship with Saudi Arabia, the leader of the OPEC cartel, which ignored Biden’s calls for an increase in global oil supplies, instead opting recently to cut production by 2 million barrels a day.
Congressional action on so-called NOPEC legislation, which would allow the U.S. Department of Justice to sue OPEC members on antitrust grounds as members of a monopoly, could come up for a vote in early 2023.
The issues troubling the U.S.-Saudi relationship do not fall neatly along party lines. Criticisms of Riyadh tend to be louder on the Democratic side, and former President Donald Trump was widely seen to have better relations with the kingdom. But Iowa’s Republican Senator Chuck Grassley has long led the charge to pass anti-OPEC legislation.
Trump’s continued influence over the Republican Party could prompt a more powerful Republican Congress to press for better relations with OPEC again. It’s hard to say how this one will fall, but it will be more difficult politically for Biden to veto or lobby against a vote on NOPEC than it has been for past presidents.
Biden’s crowning climate achievement, the Inflation Reduction Act (IRA), remains a GOP lightning rod. And while there is a high hurdle to paring back the law, Republicans can be expected to go to great lengths to expose its flaws.
Republicans remain extremely unhappy with the passage of the Democratic spending bill, which contained $369 billion in clean energy spending. House GOP lawmakers have gone so far as to repeal the law, which Biden signed in August, a central policy plank for the next Congress. If Republicans win control of the House, that means many hearings and bills centered around dismantling the IRA.
Among the most vulnerable of the IRA’s energy provisions are the new methane tax on oil and gas operations and the minimum corporate tax of 15% on income. While Congress has wide latitude regarding tax provisions, Republicans would have to win both chambers to repeal the provisions successfully. Even then, they are not likely to capture the two-thirds majority needed to overcome a presidential veto. Still, hefty GOP House oversight of federal agencies charged with implementing the law — and their budgets — could slow things down.
There is much at stake in energy at the state level in this election, too.
Republican wins in crucial producing states could exacerbate GOP pushback against environmental, social, and governance (ESG) issues. Political rhetoric around the clean energy transition in Washington is at a palpable high, which climate hawks fear could trickle down to state-level politics, widening the band of anti-ESG states.
Related debates have emerged in critical races, including gas-rich Pennsylvania. In the state’s closely watched Senate race, Republican candidate Mehmet Oz has vowed to cast aside the Biden administration’s “woke agenda” and ensure that capital flows to oil and gas projects are uninterrupted. And an SEC climate risk disclosure rule, also said to be on the GOP’s chopping block, is yet to be finalized.
Meanwhile, several tight gubernatorial races carry climate and energy implications, where a power change would almost guarantee a shift in state-level policy in those arenas. States to watch are Oklahoma, New Mexico, and Oregon.
Cat Clifford, CNBC climate tech and innovation reporter, at Helion Energy on October 20.
Photo taken by Jessie Barton, communications for Helion Energy, with Cat Clifford’s camera.
On Thursday, October 20, I took a reporting trip to Everett, Wash., to visit Helion Energy, a fusion startup that has raised raised nearly $600 million from a slew of relatively well known Silicon Valley investors, including Peter Thiel and Sam Altman. It’s got another $1.7 billion in commitments if it hits certain performance targets.
Because nuclear fusion has the potential to make limitless quantities of clean energy without generating any long-lasting nuclear waste, it’s often called the “holy grail” of clean energy. The holy grail remains elusive, however, because recreating fusion on earth in a way that generates more energy that is required to ignite the reaction and can be sustained for an extended period of time has so far remained unattainable. If we could only manage to commercialize fusion here on earth and at scale, all our energy woes would be solved, fusion proponents say.
Fusion has also been on the horizon for decades, just out of reach, seemingly firmly entrenched in a techno-utopia that exists only in science fiction fantasy novels.
David Kirtley (left), a co-founder and the CEO at Helion, and Chris Pihl, a co-founder and the chief technology officer at Helion.
Photo courtesy Cat Clifford, CNBC.
But visiting Helion Energy’s enormous workspace and lab pulled the idea of fusion out of the completely fantastical and into the potentially real for me. Of course, “potentially real” doesn’t mean that fusion will be a commercially viable energy source powering your home and my computer next year. But it no longer feels like flying a spaceship to Pluto.
As I walked through the massive Helion Energy buildings in Everett, one fully operational and one still under construction, I was struck by how workaday everything looked. Construction equipment, machinery, power cords, workbenches, and countless spaceship-looking component parts are everywhere. Plans are being executed. Wildly foreign-looking machines are being constructed and tested.
The Helion Energy building under construction to house their next generation fusion machine. The smokey atmosphere is visible.
Photo courtesy Cat Clifford, CNBC.
For the employees of Helion Energy, building a fusion device is their job. Going to the office every day means putting part A into Part B and into part C, fiddling with those parts, testing them, and then putting them with more parts, testing those, taking those parts apart maybe when something doesn’t work right, and then putting it back together again until it does. And then moving to Part D and Part E.
The date of my visit is relevant to this story, too, because it added a second layer of strange-becomes-real to my reporting trip.
On October 20, the Seattle Everett region was blanketed in dangerous levels of wildfire smoke. The air quality index for Everett was 254, making it the worst air quality in the world at that time, according to IQAir.
Helion Energy’s building under construction to house the seventh generation fusion machine on a day when wildfire smoke was not restricting visibility.
Photo courtesy Helion Energy
“Several wildfires burning in the north Cascades were fueled by warm, dry, and windy weather conditions. Easterly winds flared the fires as well as drove the resulting smoke westwards towards Everett and the Seattle region,” Christi Chester Schroeder, the Air Quality Science Manager at IQAir North America, told me.
Global warming is helping to fuel those fires, Denise L. Mauzerall, a professor of environmental engineering and international affairs at Princeton, told me.
“Climate change has contributed to the high temperatures and dry conditions that have prevailed in the Pacific Northwest this year,” Mauzerall said. “These weather conditions, exacerbated by climate change, have increased the likelihood and severity of the fires which are responsible for the extremely poor air quality.”
It was so bad that Helion had told all of its employees to stay home for the first time ever. Management deemed it too dangerous to ask them to leave their houses.
The circumstances of my visit set up an uncomfortable battle. On the one hand, I had a newfound sense of hope about the possibility of fusion energy. At same time, I was wrestling internally with a deep sense of dread about the state of the world.
Pihl has worked on fusion for nearly two decades now. He’s seen it evolve from the realm of physicist academics to a field followed closely by reporters and collecting billions in investments. People working on fusion have become the cool kids, the underdog heroes. As we collectively blow past any realistic hope of staying within the targeted 1.5 degrees of warming and as global energy demand continues to rise, fusion is the home run that sometimes feels like the only solution.
“It’s less of a academic pursuit, an altruistic pursuit, and it’s turning into more of a survival game at this point I think, with the way things are going,” Pihl told me, as we sat in the empty Helion offices looking out at a wall of gray smoke. “So it’s necessary. And I am glad it is getting attention.”
CEO and co-founder David Kirtley walked me around the vast lab space where Helion is working on constructing components for its seventh-generation system, Polaris. Each generation has proven out some combination of the physics and engineering that is needed to bring Helion’s specific approach to fusion to fruition. The sixth-generation prototype, Trenta, was completed in 2020 and proved able to reach 100 million degrees Celsius, a key milestone for proving out Helion’s approach.
Polaris is meant to prove, among other things, that it can achieve net electricity — that is, to generate more than it consumes — and it’s already begun designing its eighth generation system, which will be its first commercial grade system. The goal is to demonstrate Helion can make electricity from fusion by 2024 and to have power on the grid by the end of the decade, Kirtley told me.
Cat Clifford, CNBC climate tech and innovation reporter, at Helion Energy on October 20. Polaris, Helion’s seventh prototype, will be housed here.
Photo taken by Jessie Barton, communications for Helion Energy, with Cat Clifford’s camera.
Some of the feasibility of getting fusion energy to the electricity grid in the United States depends on factors Helion can’t control — establishing regulatory processes with the Nuclear Regulatory Commission, and licensing processes to get required grid interconnect approvals, a process which Kirtley has been told can range from a few years to as much as ten years. Because there are so many regulatory hurdles necessary to get fusion hooked into the grid, Kirtley said he expects their first paying customers are likely to be private customers, like technology companies that have power hungry data centers, for example. Working with utility companies will take longer.
One part of the Polaris system that looks perhaps the most otherworldly for a non fusion expert (like me) the Polaris Injector Test, which is how the fuel for the fusion reactor will get into the device.
Arguably the best-known fusion method involves a tokamak, a donut-shaped device that uses super powerful magnets to hold the plasma where the fusion reaction can occur.An international collaborative fusion project, called ITER (“the way” in Latin), is building a massive tokamak in Southern France to prove the viability of fusion.
Helion is not building a tokamak. It is building a long narrow device called a Field Reversed Configuration, or FRC, and the next version will be about 60 feet long.
The fuel is injected in short tiny bursts at both ends of the device and an electric current flowing in a loop confines the plasma. The magnets fire sequentially in pulses, sending the plasmas at both ends shooting towards each other at a velocity greater than one million miles per hour. The plasmas smash into each other in the central fusion chamber where they merge to become a superhot dense plasma that reaches 100 million degrees Celsius. This is where fusion occurs, generating new energy. The magnetic coils that facilitate the plasma compression also recover the energy that is generated. Some of that energy is recycled and used to recharge the capacitors that originally powered the reaction. The additional extra energy is electricity that can be used.
This is the Polaris Injector Test, where Helion Energy is building a component piece of the seventh generation fusion machine. There will be one of these on each side of the fusion device and this is where the fuel will get into the machine.
Photo courtesy Cat Clifford, CNBC.
Kirtley compares the pulsing of their fusion machine to a piston.
“You compress your fuel, it burns very hot and very intensely, but only for a little bit. And the amount of heat released in that little pulse is more than a large bonfire that’s on all the time,” he told me. “And because it’s a pulse, because it’s just one little high intensity pulse, you can make those engines much more compact, much smaller,” which is important for keeping costs down.
The idea is actually not new. It was theorized in the 1950s and 60s, Kirtley said. But it was not possible to execute until modern transistors and semiconductors were developed. Both Pihl and Kirtley looked at fusion earlier in their careers and weren’t convinced it was economically viable until they came to this FRC design.
Another moat to cross: This design does use a fuel that is very rare. The fuel for Helion’s approach is deuterium, an isotope of hydrogen that is fairly easy to find, and helium three, which is a very rare type of helium with one extra neutron.
“We used to have to say that you had to go into outer space to get helium three because it was so rare,” Kritley said. To enable their fusion machine to be scaled up, Helion is also developing a way to make helium three with fusion.
There is no question that Helion has a lot of steps and processes and regulatory hurdles before it can bring unlimited clean energy to the world, as it aims to do. But the way it feels to walk around an enormous wide-open lab facility — with some of the largest ceiling fans I have ever seen — it seems possible in a way that I hadn’t ever felt before. Walking back out into the smoke that day, I was so grateful to have that dose of hope.
But most people were not touring the Helion Energy lab on that day. Most people were sitting stuck inside, or putting themselves at risk outside, unable to see the horizon, unable to see a future where building a fusion machine is a job that is being executed like a mechanic working in a garage. I asked Kirtley about the battling feeling I had of despair at the smoke and hope at the fusion parts being assembled.
“The cognitive dissonance of sometimes what we see out in the world, and what we get to build here is pretty extreme,” Kirtley said.
“Twenty years ago, we were less optimistic about fusion.” But now, his eyes glow as he walks me around the lab. “I get very excited. I get very — you can tell — I get very energized.”
Other young scientists are also excited about fusion too. At the beginning of the week when I visited, Kirtley was at the American Physics Society Department of Plasma Physics conference giving a talk.
“At the end of my talk, I walked out and there were 30 or 40 people that came with me, and in the hallway, we just talked for an hour and a half about the industry,” he said. “The excitement was huge. And a lot of it was with younger engineers and scientists that are either grad students or postdocs, or in the first 10 years of their career, that are really excited about what private industry is doing.”
“To force poor countries to repay a loan to cope with a climate crisis they hardly caused is profoundly unfair. Instead of supporting countries that are facing worsening droughts, cyclones and flooding, rich countries are crippling their ability to cope with the next shock and deepening their poverty.” Credit: Credit: Manipadma Jena/IPS.
by Baher Kamal (madrid)
Inter Press Service
MADRID, Nov 04 (IPS) – Just a few days ahead of the UN Climate Conference (COP27) in Egypt (6-18 November), new revelations show how far rich, industrialised countries –those who contribute most to the growing catastrophes- have been lying over their real contributions to climate finance.
The report estimates between just 21-24.5 billion US dollars as the “true value” of climate finance provided in 2020, against a reported figure of 68.3 billion US dollars in public finance that rich countries said was provided (alongside mobilised private finance bringing the total to 83.3 billion US dollars).
The global climate finance target is supposed to be 100 billion US dollars a year, an amount which is slightly more than the 83 billion US dollars the world’s biggest nuclear powers spent in one single year– 2021, on such weapons of mass destruction.
Furthermore, “the combined profits of the largest energy companies in the first quarter of this year are close to 100 billion US dollars,” said already last august the UN Secretary-General António Guterres, adding that it was “immoral” that major oil and gas companies are reporting “record profits”, while prices soar.
“Very misleading”
Moreover, “rich countries’ contributions not only continue to fall miserably below their promised goal but are also very misleading in often counting the wrong things in the wrong way. They’re overstating their own generosity by painting a rosy picture that obscures how much is really going to poor countries,” said Nafkote Dabi, Oxfam International Climate Policy Lead.
Mostly loans
“Our global climate finance is a broken train: drastically flawed and putting us at risk of reaching a catastrophic destination. There are too many loans indebting poor countries that are already struggling to cope with climatic shocks.”
There is too much “dishonest” and “shady” reporting. The result is the most vulnerable countries remain ill-prepared to face the wrath of the climate crisis, warned Dabi.
Rich countries’ “manipulation”
Oxfam research found that instruments such as loans are being reported at face value, ignoring repayments and other factors. Too often funded projects have less climate focus than reported, making the net value of support specifically aiming at climate action significantly lower than actual reported climate finance figures.
Currently, loans are dominating over 70% provision (48.6 billion US dollars) of public climate finance, adding to the debt crisis across developing countries.
“To force poor countries to repay a loan to cope with a climate crisis they hardly caused is profoundly unfair. Instead of supporting countries that are facing worsening droughts, cyclones and flooding, rich countries are crippling their ability to cope with the next shock and deepening their poverty.”
Least Developed Countries’ external debt repayments reached 31 billion US dollars in 2020.
Such ‘funding’ is primarily based on loans
“A climate finance system that is primarily based on loans is only worsening the problem. Rich nations, especially the heaviest-polluting ones,” said Dabi.
A key way to prevent a full-scale climate catastrophe is for developed nations to fulfil their 100 billion US dollars commitments and genuinely address the current climate financing accounting holes. “Manipulating the system will only mean poor nations, least responsible for the climate crisis, footing the climate bill,” said Dabi.
Stalling all efforts
Other findings by this global confederation which includes 21 member organisations and affiliates reveal that an average of 189 million people per year have been affected by extreme weather-related events in developing countries since 1991 – the year that a mechanism was first proposed to address the costs of climate impacts on low-income countries.
The report, The Cost of Delay, by the Loss and Damage Collaboration – a group of more than 100 researchers, activists, and policymakers from around the globe – highlights how rich countries have repeatedly stalled efforts to provide dedicated finance to developing countries bearing the costs of a climate crisis they did little to cause.
Six fossil fuel companies
“Analysis shows that in the first half of 2022 six fossil fuel companies combined made enough money to cover the cost of major extreme weather and climate-related events in developing countries and still have nearly $70 billion profit remaining.”
The report reveals that 55 of the most climate-vulnerable countries have suffered climate-induced economic losses totalling over half a trillion dollars during the first two decades of this century as fossil fuel profits rocket, leaving people in some of the poorest places on earth to foot the bill.
Super profits. And massive deaths
It also reveals that the fossil fuel industry made enough super-profit between 2000 and 2019 to cover the costs of climate-induced economic losses in 55 of the most climate-vulnerable countries, almost sixty times over.
The report estimates that since 1991, developing countries have experienced 79% of recorded deaths and 97% of the total recorded number of people affected by the impacts of weather extremes.
The analysis also shows that the number of extreme weather and climate-related events that developing countries experience has more than doubled over that period with over 676,000 people killed.
The entire continent of Africa produces less than 4% of global emissions and the African Development Bank reported recently the continent was losing between five and 15% of its Gross Domestic Product (GDP) per capita growth because of climate change.
Enormous gains
Lyndsay Walsh, Oxfam’s Climate policy adviser and co-author of the report said: “It is an injustice that polluters who are disproportionately responsible for the escalating greenhouse gas emissions continue to reap these enormous profits while climate-vulnerable countries are left to foot the bill for the climate impacts destroying people’s lives, homes and jobs.”
Aerial view of the community water system located in the canton of El Zapote, in the municipality of Suchitoto in central El Salvador. Mounted on the roof are the 96 solar panels that generate the electricity needed to power the entire electrical and hydraulic mechanism that brings water to more than 2,500 families in this rural area of the country, which in the 1980s was the scene of heavy fighting during the Salvadoran civil war. CREDIT: Alex Leiva/IPS
by Edgardo Ayala (suchitoto, el salvador)
Inter Press Service
SUCHITOTO, El Salvador, Nov 03 (IPS) – The need for potable water led several rural settlements in El Salvador, at the end of the 12-year civil war in 1992, to rebuild what was destroyed and to innovate with technologies that at the time seemed unattainable, but which now benefit hundreds of families.
Several communities located in areas that were once the scene of armed conflict are now supplied with water through community systems powered by clean energy, such as solar power.
“The advantage is that the systems are powered by clean, renewable energies that do not pollute the environment,” Karilyn Vides, director of operations in El Salvador for the U.S.-based organization Companion Community Development Alternatives (CoCoDA), told IPS.
Hope where there was once war
The organization, based in Indianapolis, Indiana, has supported the development of 10 community water systems in El Salvador since 1992, five of them powered by solar energy.
These initiatives have benefited some 10,000 people whose water systems were destroyed during the conflict. Local residents had to start from scratch after returning years later.
A local resident of the Sitio el Zapotal community in El Zapote canton, El Salvador, turns on the tap to fill his sink to collect the water he will need for the day. A total of 10,000 people have benefited from the five solar-powered community water projects in El Salvador since 2010. CREDIT: Edgardo Ayala/IPS
This small Central American country experienced a bloody civil war between 1980 and 1992, which left some 75,000 people dead and more than 8,000 missing.
“Before leaving their communities, some families had water systems, but when they returned they had been completely destroyed, and they had to be rebuilt,” Vides said, during a tour by IPS to the Junta Administradora de Agua Potable or water board in the canton of El Zapote, Suchitoto municipality, in the central Salvadoran department of Cuscatlán.
In El Salvador, the term Junta Administradora de Agua Potable refers to community associations that, on their own initiative, manage to drill a well, build a tank and the entire distribution structure to provide service where the government has not had the capacity to do so.
There are an estimated 2,500 such water boards in the country, which provide service to 25 percent of the population, or some 1.6 million people, according to local environmental organizations.
But most of the water boards operate with hydroelectric power provided by the national grid, while the villages around Suchitoto have managed, with the support of CoCoDA and local organizations, to run on solar energy.
The community water project in the Salvadoran community of Sitio El Zapotal was driven by the efforts of local residents and international donors. At the foot of the catchment tank stand Karilyn Vides of CoCoDA, consultant and former guerrilla fighter René Luarca (front) – a member of the project’s water board – and former guerrilla Luis Antonio Landaverde (left), together with two technicians. CREDIT: Edgardo Ayala/IPS
This area is located on the slopes of the Guazapa mountain north of San Salvador, which during the civil war was a key stronghold of the then guerrilla Farabundo Martí National Liberation Front (FMLN), now a political party that governed the country between 2009 and 2019.
Some of the people behind the creation of the water board in the canton of El Zapote were part of the guerrilla units entrenched on Guazapa mountain.
“This area was heavily bombed and shelled, day and night,” Luis Antonio Landaverde, 56, a former guerrilla fighter who had to leave the front lines when a bomb explosion fractured his leg in July 1985, told IPS.
“A bomb dropped by an A37 plane fell nearby and broke my right leg, and I could no longer fight,” said Landaverde, who sits on the El Zapote water board.
The Junta de Agua del Cantón El Zapote, in central El Salvador, is the largest solar-powered community water project in the country, although it uses electricity from the national grid, from hydroelectric sources, as backup. CREDIT: Edgardo Ayala/IPS
Peasant farmers in the technological vanguard
At the end of the war in 1992, communities in the foothills of Guazapa began to organize themselves to set up their community water systems, at first using the national power grid, generated by hydroelectric sources.
Then they realized that the cost of the electricity and bringing the grid to remote villages was too high, and necessity and creativity drove them to look for other options.
“I was already very involved in alternative energy, and we thought that bringing in electricity would be as expensive as installing a solar energy system,” René Luarca, one of the architects of the use of sunlight in the community systems, told IPS.
The first solar-powered water system was built in 2010 in the Zacamil II community, in the Suchitoto area, benefiting some 40 families.
And because it worked so well, four similar projects followed in 2017.
Two were carried out around that municipality, and another in the rural area of the department of Cabañas, in the north of the country.
Given the project’s success, an effort was even made to develop a similar system in the community of Zacataloza, in the municipality of Ciudad Antigua, in the department of Nueva Segovia in northwestern Nicaragua.
The total investment exceeded 200,000 dollars, financed by CoCoDA’s U.S. partner organizations.
However, these were smallscale initiatives, benefiting an average of 100 families per project.
“There were eight panels, they were tiny, like little toys,” said Luarca, 80, known in the area as “Jerry,” his pseudonym during the war when he was a guerrilla in the National Resistance, one of the five organizations that made up the FMLN.
Then came the big challenge: to set up the project in the canton of El Zapote, which would require more panels and would provide water to a much larger number of families.
“This has been the biggest challenge, because there are no longer four panels – there are 96,” said Luarca.
A valve connected to the pump of the community water system in central El Salvador measures the pressure at which the liquid is being pumped to a catchment tank, located on a hill five kilometers away. The water flows down by gravity to the beneficiary families, who pay a monthly fee of six dollars for 12 cubic meters of water. CREDIT: Edgardo Ayala/IPS
The water system in El Zapote is a hybrid setup. This allows it to use solar energy as the main source, but it is backed up by the national grid, fueled by hydropower, when there is no sunshine or there are other types of failures.
“Since it is a fairly large system, it is not 100 percent solar, but is hybrid, so that it has both options,” explained Eliseo Zamora, 42, who is in charge of monitoring the operation of the equipment.
Using the pump, driven by a 30-horsepower motor, water is piped from the well to a tank perched on top of a hill, about five kilometers away as the crow flies.
From there, water flows by gravity down to the villages through a 25-kilometer network of pipes that zigzag under the subsoil, until reaching the families’ taps.
The project started when the armed conflict ended, but it took several years to buy the land, with resources from the six communities involved, and to acquire the machinery for the hydraulic system. It began operating in 2004 with electricity from the national grid, before CoCoDA switched to supporting the solar infrastructure.
For the installation of the panels and the adaptation of the system, the water board contributed 14,000 dollars, part of it from the hours worked by the villagers.
The new solar power system was inaugurated in June 2022 and benefits some 10 communities in the area – more than 2,500 families.
The service fee is six dollars per month for 12 cubic meters of water. For each additional cubic meter, the users are charged 0.55 cents.
“Our water is excellent, it is good for all kinds of human consumption,” the president of the water board, Ángela Pineda, told IPS.
How good is a company’s chief executive officer at investing your money most efficiently? This is an important question for long-term investors. It may underline the difference between a steady long-term performer and a flash in the pan.
And Apple Inc. AAPL, -4.24%
now makes up 7% of the SPDR S&P 500 ETF Trust SPY, -1.03%,
the first and largest exchange-traded fund (with $360 billion in assets), which tracks the benchmark S&P 500 SPX, -1.06%.
That’s close to an all-time record, and the iPhone maker has a whopping 14.1% position in the Invesco QQQ Trust QQQ, -1.95%,
which tracks the Nasdaq-100 Index NDX, -1.98%.
Looking at the full Nasdaq Index COMP, -1.73%,
which has 3,747 stocks, Apple takes a 13.5% position.
Apple now makes up 7.3% of the S&P 500 by market capitalization, close to the 8% record it set late in September.
FactSet
This is very much an Apple stock market, with the company topping the broad indexes that are weighted by market capitalization. You are likely to be invested in the company indirectly. You also might be feeling Apple’s impact in other ways. Apple’s App Store ecosystem drives more than $600 billion in annual revenue for developers.
Tim Cook’s tenure as Apple’s CEO has been nothing short of breathtaking when measured by the company’s financial performance. Apple is not one of the fastest-growing companies when measured by sales or earnings — it is too big for that. But its excellent stock performance has reflected Cook’s ability to deploy invested capital with improving efficiency. Cook has also been a market trendsetter in other important ways. He has Apple repurchasing $90 billion of its shares annually, setting the pace for stock buybacks in the market. Cook’s steady hand has also helped Apple withstand the market’s tech wreck and remain a stable pillar for the teetering Nasdaq Composite index generally. For all these reasons, Cook has earned a spot on the MarketWatch 50 list of the most influential people in markets.
Apple keeps improving by this important measure
Investors in the stock market are looking for growth over the long term. The best measure of that is whether or not a company’s share price goes up or down. But Cook isn’t just managing Apple’s stock. Digging a bit deeper into the company’s actual operating performance can provide some insight into what a good job Cook has done.
What should a corporate manager focus on? The stock price? How about the most efficient and most profitable way to provide goods and services? There are different ways to do this, and Apple has focused on quality, reliability and excellent service to build customer loyalty.
Apple’s commitment can be experienced by anyone who calls the company for customer service. It is easy to get through to a well-trained representative who will solve your problem. How many companies can say that at a time when it seems many companies cannot even handle answering the phone?
Apple’s returns on invested capital have increased markedly over the past six years.
FactSet
A company’s return on invested capital (ROIC) is its profit divided by the sum of the carrying value of its common stock, preferred stock, long-term debt and capitalized lease obligations. ROIC indicates how well a company has made use of the money it has raised to run its business. It is an annualized figure, but available quarterly, as used in the chart above.
The carrying value of a company’s stock may be a lot lower than its current market capitalization. The company may have issued most of its shares long ago at a much lower share price than the current one. If a company has issued shares recently or at relatively high prices, its ROIC will be lower.
A company with a high ROIC is likely either to have a relatively low level of long-term debt or to have made efficient use of the borrowed money.
Among companies in the S&P 500 that have been around for at least 10 years, Apple placed within the top 20 for average ROIC for the previous 40 reported fiscal quarters as of Sept. 1.
As you can see on the chart, Apple’s ROIC has improved dramatically over the past five years, even as the wide adoption of the company’s products and services has led to an overall slowdown in sales growth.
A quick comparison with other giants in the benchmark index
It might be interesting to see how Apple stacks up among other large companies, in part because some businesses are more capital-intensive than others. For example, over the past four quarters, Apple’s ROIC has averaged 52.9%, while the average for the S&P 500 has been a weighted 12.1%, by FactSet’s estimate.
Here are the 10 companies in the S&P 500 reporting the highest annual sales for their most recent full fiscal years, with a comparison of average ROIC over the past 40 reported quarters:
Among the largest 10 companies in the S&P 500 by annual sales, Apple takes the top ranking for average ROIC over the past 10 years, while ranking second for total return behind UnitedHealth Group Inc. UNH, +0.03%
and ahead of Amazon.com Inc. AMZN, -3.06%.
UnitedHealth has been able to remain at the forefront of managed care during the period of transition for healthcare in the U.S., in the wake of President Barack Obama’s signing of the Affordable Care Act into law in 2010.
Here’s a chart showing 10-year total returns for Apple, UnitedHealth Group, Amazon and the S&P 500:
FactSet
Apple is only slightly ahead of Amazon’s 10-year total return. But what is so striking about this chart is the volatility. Apple has had a smoother ride. During the bear market of 2022, Apple’s stock has declined 18%, while the S&P 500 has gone down 20%, the Nasdaq has fallen 32% (all with dividends reinvested) and Amazon has dropped 45%.
The broad indexes would have fared even worse so far this year without Apple.
LIVERPOOL, England — On the long picket line outside the gates of Liverpool’s Peel Port, rain-soaked dock workers warm themselves with cups of tea as they listen to 1980s pop.
Dozens of buses, cars and trucks honk in solidarity as they pass.
Dockers’ strikes are not new to Liverpool, nor is depravation. But this latest walk-out at Britain’s fourth-largest port is part of something much bigger, a great wave of public and private sector strikes taking place across the U.K. Railways, postal services, law courts and garbage collections are among the many public services grinding to a halt.
The immediate cause of the discontent, as elsewhere, is the rising cost of living. Inflation in the United Kingdom breached the 10 percent mark this year, with wages failing to keep pace.
But the U.K.’s economic woes long predate the current crisis. For more than a decade, Britain has been beset by weak economic growth, anaemic productivity, and stagnant private and public sector investment. Since 2016, its political leadership has been in a state of Brexit-induced flux.
Half a century after U.S. Secretary of State Henry Kissinger looked at the U.K.’s 1970s economic malaise and declared that “Britain is a tragedy,” the United Kingdom is heading to be the sick man of Europe once again.
The immediate cause of Liverpool dockers’ discontent that brought them to strike is the rising cost of living. | Christopher Furlong/Getty Images
Here in Liverpool, the “scars run very deep,” said Paul Turking, a dock worker in his late 30s. British voters, he added, have “been misled” by politicians’ promises to “level up” the country by investing heavily in regional economies. Conservatives “will promise you the world and then pull the carpet out from under your feet,” he complained.
“There’s no middle class no more,” said John Delij, a Peel Port veteran of 15 years. He sees the cost-of-living crisis and economic stagnation whittling away the middle rung of the economic ladder.
“How many billionaires do we have?” Delij asked, wondering how Britain could be the sixth-largest economy in the world with a record number of billionaires when food bank use is 35 percent above its pre-pandemic level. “The workers put money back into the economy,” he said.
What would they do if they were in charge? “Invest in affordable housing,” said Turking. “Housing and jobs.”
Falling behind
The British economy has been struck by particular turbulence over recent weeks. The cost of government borrowing soared in the wake of former PM Liz Truss’ disastrous mini-budget on September 23, with the U.K.’s central bank forced to step in and steady the bond markets.
But while the swift installation of Rishi Sunak, the former chancellor, as prime minister seems to have restored a modicum of calm, the economic backdrop remains bleak. Spending and welfare cuts are coming. Taxes are certain to rise. And the underlying problems cut deep.
U.K. productivity growth since the financial crisis has trailed that of comparator nations such as the U.S., France and Germany. As such, people’s median incomes also lag behind neighboring countries over the same period. Only Russia is forecast to have worse economic growth among the G20 nations in 2023.
In 1976, the U.K. — facing stagflation, a global energy crisis, a current account deficit and labor unrest — had to be bailed out by the International Monetary Fund. It feels far-fetched, but today some are warning it could happen again.
The U.K. is spluttering its way through an illness brought about in part through a series of self-inflicted wounds that have undermined the basic pillars of any economy: confidence and stability.
The political and economic malaise is such that it has prompted unwanted comparisons with countries whose misfortunes Britain once watched amusedly from afar.
“The existential risk to the U.K. … is not that we’re suddenly going to go off an economic cliff, or that the country’s going to descend into civil war or whatever,” said Jonathan Portes, professor of economics at King’s College London. “It’s that we will become like Italy.”
Portes, of course, does not mean a country blessed with good weather and fine food — but an economy hobbled by persistently low growth, caught in a dysfunctional political loop that lurches between “corrupt and incompetent right-wing populists” and “well-intentioned technocrats who can’t actually seem to turn the ship around.”
“That’s not the future that we want in the U.K,” he said.
Reviving the U.K.’s flatlining economy will not happen overnight. As Italy’s experience demonstrates, it’s one thing to diagnose an illness — another to cure it.
Experts speak of an unbalanced model heavily reliant upon Britain’s services sector and beset with low productivity, a result of years of underinvestment and a flexible labor market which delivers low unemployment but often insecure and low-paid work.
“We’re not investing in skills; businesses aren’t investing,” said Xiaowei Xu, senior research economist at the Institute for Fiscal Studies. “It’s not that surprising that we’re not getting productivity growth.”
But any attempt to address the country’s ailments will require its economic stewards to understand their underlying causes — and those stretch back at least to the first truly global crisis of the 21st century.
Crash and burn
The 2008 financial crisis hammered economies around the world, and the U.K. was no exception. Its economy shrunk by more than 6 percent between the first quarter of 2008 and the second quarter of 2009. Five years passed before it returned to its pre-recession size.
For Britain, the crisis in fact began in September 2007, a year before the collapse of Lehman Brothers, when wobbles in the U.S. subprime mortgage market sparked a run on the British bank Northern Rock.
The U.K. discovered it was particularly vulnerable to such a shock. Over the second half of the 20th century, its manufacturing base had largely eroded as its services sector expanded, with financial and professional services and real estate among the key drivers. As the Bank of England put it: “The interconnectedness of global finance meant that the U.K. financial system had become dangerously exposed to the fall-out from the U.S. sub-prime mortgage market.”
The crisis was a “big shock to the U.K.’s broad economic model,” said John Springford, from the Centre for European Reform. Productivity took an immediate hit as exports of financial services plunged. It never fully recovered.
“Productivity before the crash was basically, ‘Can we create lots and lots of debt and generate lots and lots of income on the back of this? Can we invent collateralized debt obligations and trade them in vast volumes?’” said James Meadway, director of the Progressive Economy Forum and a former adviser to Labour’s left-wing former shadow chancellor, John McDonnell.
A post-crash clampdown on City practises had an obvious impact.
“This is a major part of the British economy, so if it’s suddenly not performing the way it used to — for good reasons — things overall are going to look a bit shaky,” Meadway added.
The shock did not contain itself to the economy. In a pattern that would be repeated, and accentuated, in the coming years, it sent shuddering waves through the country’s political system, too.
The 2010 election was fought on how to best repair Britain’s broken economy. In 2009, the U.K. had the second-highest budget deficit in the G7, trailing only the U.S., according to the U.K. government’s own fiscal watchdog, the Office for Budget Responsibility (OBR).
The Conservative manifesto declared “our economy is overwhelmed by debt,” and promised to close the U.K.’s mounting budget deficit in five years with sharp public sector cuts. The incumbent Labour government responded by pledging to halve the deficit by 2014 with “deeper and tougher” cuts in public spending than the significant reductions overseen by former Conservative Prime Minister Margaret Thatcher in the 1980s.
The election returned a hung parliament, with the Conservatives entering into a coalition with the Liberal Democrats. The age of austerity was ushered in.
Austerity nation
Defenders of then-Chancellor George Osborne’s austerity program insist it saved Britain from the sort of market-led calamity witnessed this fall, and put the U.K. economy in a condition to weather subsequent global crises such as the COVID-19 pandemic and the fallout from the war in Ukraine.
“That hard work made policies like furlough and the energy price cap possible,” said Rupert Harrison, one of Osborne’s closest Treasury advisers.
Pointing to the brutal market response to Truss’ freewheeling economic plans, Harrison praised the “wisdom” of the coalition in prioritizing tackling the U.K.’s debt-GDP ratio. “You never know when you will be vulnerable to a loss of credibility,” he noted.
But Osborne’s detractors argue austerity — which saw deep cuts to community services such as libraries and adult social care; courts and prisons services; road maintenance; the police and so much more — also stripped away much of the U.K.’s social fabric, causing lasting and profound economic damage. A recent study claimed austerity was responsible for hundreds of thousands of excess deaths.
Under Osborne’s plan, three-quarters of the fiscal consolidation was to be delivered by spending cuts. With the exception of the National Health Service, schools and aid spending, all government budgets were slashed; public sector pay was frozen; taxes (mainly VAT) rose.
But while the government came close to delivering its fiscal tightening target for 2014-15, “the persistent underperformance of productivity and real GDP over that period meant the deficit remained higher than initially expected,” the OBR said. By his own measure, Osborne had failed, and was forced to push back his deficit-elimination target further. Austerity would have to continue into the second half of the 2010s.
Many economists contend that the fiscal belt-tightening sucked demand out of the economy and worsened Britain’s productivity crisis by stifling investment. “That certainly did hit U.K. growth and did some permanent damage,” said King’s College London’s Portes.
“If that investment isn’t there, other people start to find it less attractive to open businesses,” former Labour aide Meadway added. “If your railways aren’t actually very good … it does add up to a problem for businesses.”
A 2015 study found U.K. productivity, as measured by GDP per hour worked, was now lower than in the rest of the G7 by a whopping 18 percentage points.
“Frankly, nobody knows the whole answer,” Osborne said of Britain’s productivity conundrum in May 2015. “But what I do know is that I’d much rather have the productivity challenge than the challenge of mass unemployment.”
‘Jobs miracle’
Rising employment was indeed a signature achievement of the coalition years. Unemployment dropped below 6 percent across the U.K. by the end of the parliament in 2015, with just Germany and Austria achieving a lower rate of joblessness among the then-28 EU states. Real-term wages, however, took nearly a decade to recover to pre-crisis levels.
Economists like Meadway contend that the rise in employment came with a price, courtesy of Britain’s famously flexible labor market. He points to a Sports Direct warehouse in the East Midlands, where a 2015 Guardian investigation revealed the predominantly immigrant workforce was paid illegally low wages, while the working conditions were such that the facility was nicknamed “the gulag.”
The warehouse, it emerged, was built on a former coal mine, and for Meadway the symbolism neatly charts the U.K.’s move away from traditional heavy industry toward more precarious service sector employment. “It’s not a secure job anymore,” he said. “Once you have a very flexible labor market, the pressure on employers to pay more and the capacity for workers to bargain for more is very much reduced.”
Throughout the period, the Bank of England — the U.K.’s central bank — kept interest rates low and pursued a policy of quantitative easing. “That tends to distort what happens in the economy,” argued Meadway. QE, he said, is a “good [way of] getting money into the hands of people who already have quite a lot” and “doesn’t do much for people who depend on wage income.”
Meanwhile — whether necessary or not — the U.K.’s austerity policies undoubtedly worsened a decades-long trend of underinvestment in skills and research and development (Britain lags only Italy in the G7 on R&D spending). At British schools, there was a 9 percent real terms fall in per-pupil spending between 2009 and 2019, according to the Institute for Fiscal Studies’ Xu. “As countries get richer, usually you start spending more on education,” Xu noted.
Two senior ministers in the coalition government — David Gauke, who served in the Treasury throughout Osborne’s tenure, and ex-Lib Dem Business Secretary Vince Cable — have both accepted that the government might have focused more on higher taxation and less on cuts to public spending. But both also insisted the U.K had ultimately been correct to prioritize putting its public finances on a sounder footing.
It was February 2018 before Britain finally achieved Osborne’s goal of eliminating the deficit on its day-to-day budget.
Austerity was coming to an end, at last. But Osborne had already left the Treasury, 18 months earlier — swept away along with Cameron in the wake of a seismic national uprising.
***
David Cameron had won the 2015 election outright, despite — or perhaps because of — the stringent spending cuts his coalition government had overseen, more of which had been pledged in his 2015 manifesto. Also promised, of course, was a public vote on Britain’s EU membership.
The reasons for the leave vote that followed were many and complex — but few doubt that years of underinvestment in poorer parts of the U.K. were among them.
Regardless, the 2016 EU referendum triggered a period of political acrimony and turbulence not seen in Westminster for generations. With no pre-agreed model of what Brexit should actually entail, the U.K.’s future relationship with the EU became the subject of heated and protracted debate. After years of wrangling, Britain finally left the bloc at the end of January 2020, severing ties in a more profound way than many had envisaged.
While the twin crises of COVID and Ukraine have muddled the picture, most economists agree Brexit has already had a significant impact on the U.K. economy. The size of Britain’s trade flows relative to GDP has fallen further than other G7 countries, business investment growth trails the likes of Japan, South Korea and Italy, and the OBR has stuck by its March 2020 prediction that Brexit would reduce productivity and U.K. GDP by 4 percent.
Perhaps more significantly, Brexit has ushered in a period of political instability. As prime ministers come and go (the U.K. is now on its fifth since 2016), economic programs get neglected, or overturned. Overseas investors look on with trepidation.
“The evidence that the referendum outcome, and the kind of uncertainty and change in policy that it created, have led to low investment and low growth in the U.K. is fairly compelling,” said professor Stephen Millard, deputy director at the National Institute of Economic and Social Research.
Beyond the instability, the broader impact of the vote to leave remains contentious.
Portes argued — as many Remain supporters also do — that much harm was done by the decision to leave the EU’s single market. “It’s the facts, not the uncertainty that in my view is responsible for most of the damage,” he said.
Brexit supporters dismiss such claims.
“It’s difficult statistically to find much significant effect of Brexit on anything,” said professor Patrick Minford, founder member of Economists for Brexit. “There’s so much else going on, so much volatility.”
Minford, an economist favored by ex-PM Truss, acknowledged that “Brexit is disruptive in the short run, so it’s perfectly possible that you would get some short-run disruption.” But he added: “It was a long-term policy decision.”
Where next?
Plenty of economists can rattle off possible solutions, although actually delivering them has thus far evaded Britain’s political class. “It’s increasing investment, having more of a focus on the long-term, it’s having economic strategies that you set out and actually commit to over time,” says the IFS’ Xu. “As far as possible, it’s creating more certainty over economic policy.”
But in seeking to bring stability after the brief but chaotic Truss era, new U.K. Chancellor Jeremy Hunt has signaled a fresh period of austerity is on the way to plug the latest hole in the nation’s finances. Leveling Up Secretary Michael Gove told Times Radio that while, ideally, you wouldn’t want to reduce long-term capital investments, he was sure some spending on big projects “will be cut.”
This could be bad news for many of the U.K.’s long-awaited infrastructure schemes such as the HS2 high-speed rail line, which has been in the works for almost 15 years and already faces a familiar mix of local resistance, vested interests, and a sclerotic planning system.
“We have a real problem in the sense that the only way to really durably raise productivity growth for this country is for investments to pick up,” said Springford, from the Centre for European Reform. “And the headwinds to that are quite significant.”
For dock workers at Liverpool’s Peel Port, the prospect of a fresh round of austerity amid a cost-of-living crisis is too much to bear. “Workers all over this country need to stand up for themselves and join a union,” insisted Delij.
For him, it’s all about priorities — and the arguments still echo back to the great crash of 15 years ago. “They bailed the bankers out in 2007,” he said, “and can’t bail hungry people out now.”
There are over 8,500 coal power plants in the world, with over 2,100 GWs of capacity. These plants generate about 10 gigatons of CO2 emissions per year, nearly 30% of the global total. Credit: Bigstock
Opinion by Philippe Benoit, Chandra Shekhar Sinha (washington dc)
Inter Press Service
WASHINGTON DC, Nov 02 (IPS) – Report after report highlights that we can only achieve the greenhouse gas (GHG) emission reductions required by the climate goals of the Paris Agreement if much of the existing coal power generation capacity is retired early. To this end, one concept that deserves greater consideration is conducting an auction for early retirement of coal power plants worldwide: a global coal retirement auction. This article sets out the broad outlines of how this global auction might operate.
Accordingly, climate/development organizations, like the Asian Development Bank (ADB), the World Bank, the IEA and RMI, are exploring programs to effect the early retirement of these coal plants.
But closing these plants presents two important challenges. First, retiring these plants removes electricity production that many countries rely upon for their economic development … production that would need to be replaced with preferably low-carbon sources. Second, owners are generally unwilling to shutter revenue-generating plants and want financial compensation for the returns they would forego from the premature retirement of their asset. This article addresses this second constraint.
There are various regulatory mechanisms that can be used to push early retirement, such as mandating closure of plants or imposing a carbon tax or other cost that makes operating the plant uneconomic.
But what’s a fair price? Perhaps, however, that’s not the right question. Rather, at what price are the owners willing to shutter their plants? Given that there are more than 8,500 coal power plants operating with different technical and revenue characteristics, and over 2,000 plant owners in diverse financial situations following distinctive corporate strategies (including numerous state-owned enterprises), the answer will vary.
A technique that has been used in this type of context of multiple actors is an “auction”. While in the traditional context, a seller looks to get the highest price from multiple possible buyers through an auction, in this case, we have a buyer that is interested in paying the lowest price to different plant owners (i.e., the sellers) for the retirement of their coal plants.
The reverse auction mechanism could be used to solicit proposals from coal power plant owners as to the price at which they would be willing to close their plant. Conceptually, this could be done on the basis of MWs of installed power generation capacity. Under the auction, an interested coal plant owner would offer to sell — more specifically, to shutter — their MWs of plant capacity by a fixed time at a proposed price.
Importantly, the climate benefit sought by the auction is not from the decommissioning of MWs of capacity itself, but rather from the GHG emissions that would be avoided by retiring that capacity. Accordingly, for any coal retirement tender, it will be necessary to estimate the level of emissions that would be avoided.
This determination will be based on several factors, including the particular plant’s efficiency, remaining operational life and other technical characteristics, the type of coal used, and the amount of electricity production projected to be foregone through early retirement given the power system’s expected demand for electricity from that plant.
Tenders should include sufficient information to evaluate these items and, by extension, the level of avoided emissions and related climate benefit to be produced from the proposed retirement. This, in turn, will drive how much the auction buyer should be willing to pay for the tender.
Moreover, because it would be largely counter-productive from a climate perspective to pay to retire existing coal plants to see that money used directly (or indirectly) to build new fossil fuel generation, the tender by the plant owner would need to be accompanied by an undertaking not to reinvest in new fossil fuel generation.
As has been repeatedly explained, CO2 emissions have a global impact that is essentially unaffected by the geographic location of the emitting plant. Given this global nature of emissions, the auction would likewise be conducted at a worldwide level as a global auction. From India to Indonesia, from South Africa to South Korea, from Poland to Australia, any plant anywhere would be eligible to participate in the global auction.
Given this scope, an international organization like the United Nations or a multilateral development bank would be well positioned to provide the platform for this auction. One could imagine a system where the auction bidding process sets out eligibility criteria for projects, the methodology for estimating GHG emission reductions, and other key bid-submission parameters.
Significantly, while the bidding process would be managed on an integrated basis, the funding and selection of winners need not be. Rather, a system that allows for the matching of interested coal retirement buyers with individual plant owners could be used.
For example, buyers and their funding could be mobilized on a plant-by-plant basis based on information submitted by the plant owner through the auction process. Indeed, many potential funders have areas of focus that could lead them to be attracted to retiring coal assets only in certain countries (e.g., funders interested in a targeted set of developing countries). The proposed auction structure could accommodate these preferences. Moreover, the global auction could also operate in association with country-specific approaches.
One potential source of funding for coal retirements tendered under the auction is the potentially large amounts of capital to be mobilized through expanded carbon credit mechanisms under development. Tapping into these mechanisms might require establishing defined project eligibility criteria, frameworks for calculating GHG emissions reductions, and associated monitoring and verification systems to enable payments for emission reductions at the time of decommissioning based on a price for emission reduction (“carbon”) credits.
It is also important to recall the first constraint noted earlier, namely that countries, and particularly developing countries, will need more electricity to power further economic and social development. Accordingly, any global auction to retire coal plants needs to be coupled with a program to fund new renewables electricity generation.
Climate change is a global challenge affected by GHG emissions from anywhere. We need to reduce emissions from coal power generation and that requires some program to encourage and entice owners to shutter their plants. A global auction, conducted by the United Nations or a similar international organization, would help to identify opportunities where willing plant owners and interested funders can make a deal.
Philippe Benoit has over 20 years working on international energy, finance and development issues, including management positions at the World Bank and the International Energy Agency. He is currently research director at Global Infrastructure Analytics and Sustainability 2050.
Chandra Shekhar Sinha is an Adviser in the Climate Change Group at the World Bank and works on climate and carbon finance. He previously worked at JPMorgan, TERI-India, UNDP, and the Kennedy School of Government at Harvard University.
Vicki Hollub’s Occidental Petroleum controls the biggest piece of the most important area for oil production in the United States. Not so long ago, an oilman in a position like that—and it would’ve been a man, before Hollub came along—would have gone for broke, turning up production to its physical limits.
Not Hollub. Occidental produces on average the equivalent of about 1.15 million barrels of oil a day, and that’s more than enough to turn a profit. The company can make money as long as oil prices are above $40 a barrel. They’ve been above $80 for almost all of this year, as the war in Ukraine takes a toll on global markets and the Saudi-led oil cartel OPEC now slashes production.
“We don’t feel like we’re in a national crisis right now,” Hollub told MarketWatch in an interview. And that means Hollub can keep executing on her plans: making shareholders happy by paying down debt and buying back shares. “When you have such a low break-even, to me there’s no pressure to increase production right now, when we have these other two ways that we can increase shareholder value,” Hollub said.
That market-focused logic puts her at odds with President Biden, who is acting like there is a national energy crisis ongoingprecisely because of what oil CEOs like Hollub are doing. The size of oil companies’ profits is outrageous, Biden said Monday. They’re raking in cash not because of innovation or investment but as a windfall from the war in Ukraine, Biden said. “Rather than increasing their investments in America or giving American consumers a break, their excess profits are going back to their shareholders and to buying back their stock, so the executive pay is — are going to skyrocket,” Biden said. He has ordered releases from the Strategic Petroleum Reserve to keep down gas prices and asked Congress to tax oil-company profits.
But Hollub is single-mindedly focused on seizing the moment to improve the company’s financial position. Occidental still has significant debt left over from a challenging acquisition Hollub spearheaded before the pandemic. In the second quarter alone, the company used its windfall to repay $4.8 billion in debt. If Biden called, she’d listen, but she hasn’t spoken to him one-on-one. Hollub said she’d spoken to the administration through Energy Secretary Jennifer Granholm. (“She doesn’t know the industry very well right now, but it’s because she hasn’t been in her job very long,” Hollub said.) The White House and the Department of Energy did not return requests for comment.
Hollub says she’s just following the market. “If demand goes down, we reduce production, if it goes up, we increase.” Oil prices have fluctuated rapidly over the year, and with a recession widely anticipated in the near future, demand could drop, Hollub said. Biden’s releases of oil from the SPR, she added, may have reduced gasoline prices, but at a cost to national security. “The SPR should be reserved for emergency situations, and you never know when those might come,” Hollub said.
Hollub’s message may not be politically convenient, but it’s exactly what her shareholders want to hear. Occidental OXY, -2.29%
is America’s hottest stock and has returned 150% this year, making it the top-performing company in the S&P 500 SPX, -0.65%.
Investors who bought shares of Occidental in January and held them through today would have more than doubled their money, even as the broader market has crashed. Warren Buffett’s Berkshire Hathaway has gone on a buying spree this year, and now owns more than 20% of Occidental’s shares. How Hollub got here constitutes America’s greatest corporate saga in recent years, from her 2019 debt-fueled decision to buy bigger rival Anadarko Petroleum over the vocal objections of activist investor Carl Icahn, to the pandemic-induced collapse in oil prices that almost bankrupted Occidental, and Buffett’s extension, removal, and re-extension of support.
With Occidental now on solid financial footing, Hollub is continuing to leave a mark on the oil industry and the world, landing her on the MarketWatch 50 list of the most influential people in markets. Hollub’s tangles with the wise men of Wall Street have left her savvier about how to manage her business. Stung by previous boom-and-bust cycles, Hollub has helped lead America’s oil frackers away from being “swing producers” that could counter the war-driven increase in energy prices, as she paid down debt and returned cash to shareholders through dividends and stock buybacks instead of plowing some of that money into shale oil fields. She is also pushing investment into Occidental’s massive new carbon-capture effort.
More than anything, Hollub is focused on guys like Bill Smead, founder of Smead Capital Management, who is a long-term investor in Occidental and a Hollub fan. “She’s somebody that we have a great deal of respect for and appreciate all the money she’s making us,” he said.
With that kind of backing, Hollub is planning to put Occidental in the driver’s seat of the massive national economic transition induced by climate change. She is positioning Occidental to be the company of the energy transition, one geared not to the free-for-all economy of the last century or some carbonless vision of the next, but the oil company for right now. She might even stop drilling new oil wells entirely.
“Now we feel like we control our own destiny,” Hollub said.
For the chief executive of a company that’s having a banner year on Wall Street while investors choke down generational losses, Hollub seems to constantly be on the alert for threats. Talking through the company’s prospects, she repeats a certain phrase: “I know that this will ultimately get me in trouble, but…”
Trouble? Hollub and Occidental have known their share.
The drama surrounding Occidental’s 2019 acquisition of Anadarko would make for a good boardroom thriller—or at least a lively business-school case study. Anadarko had big assets in the crucial Permian Basin region of Texas and New Mexico, where horizontal drilling in shale rock had reinvigorated an aging oil field into the nation’s biggest production zone.
Hollub and her team made an offer to buy Anadarko after months of research. She thought she had a deal locked, only to hear on the radio that Anadarko had announced plans to combine with Chevron. She nearly drove off the road, Texas Monthly recounts.
Hollub turned to Buffett for help. He agreed to what was effectively a $10 billion loan at 8% interest, in the form of preferred shares, along with warrants that allow Berkshire Hathaway, Buffett’s company, to buy more common stock. That got Hollub what she wanted, but many on Wall Street hated it. “The Buffett deal was like taking candy from a baby and amazingly she even thanked him publicly for it!” Icahn wrote in a letter to his fellow shareholders. Icahn had bought a slug of Occidental’s shares and, in the ensuing months, the billionaire investor led a shareholder campaign against Hollub, insisting that she needed stronger board oversight. Icahn allies were made Occidental directors.
In 2020, as COVID-19 flattened the global economy, deeply indebted Occidental was forced to cut its dividend for the first time in decades. Buffett sold his stock. At Icahn’s urging, the company issued 113 million warrants to its shareholders, allowing them to buy shares at $22, at a time when the stock was trading at $17. Gary Hu, one of the Icahn directors on Occidental’s board, pointed to those warrants as evidence of their success. “Our involvement in Occidental represented activism at its finest,” said Hu.
Hollub flatly disagrees. Icahn saw an opportunity to make an easy profit in derailing the Anadarko deal, Hollub said. “And what he expected is that we would lose and he would benefit from that. Since that didn’t happen, he managed to maneuver his way onto the board.” Icahn’s representatives on the board came to Hollub with a number of plans, including the warrants. She felt that one wouldn’t do any harm. “So that’s what we agreed to, but yeah, the other 10 or so weird things, we didn’t do.”
““She’s somebody that we have a great deal of respect for and appreciate all the money she’s making us.””
— Bill Smead, founder of Smead Capital Management
Former Occidental CEO Stephen Chazen returned to chair the board at Icahn’s insistence. Icahn and Occidental ultimately reached a settlement. His board members left, and the activist sold his common shares earlier this year. Chazen passed away in September. The experience embittered both sides, but there is one point of agreement: Hollub will do as she sees fit. “We were clearly wrong about the board’s ability to restrain Vicki’s ambitions,” Hu said.
Icahn made a $1.5 billion profit. At a MarketWatch event in September, Icahn said he still holds the warrants. But he hasn’t let go of the issues that motivated him to push into Occidental in the first place, though he insists he has no problem with Hollub personally. He likened her to a kid who got lucky gambling in Vegas. “The system allowed her to do it. And she’s just one small example of what is wrong with corporate governance.”
But as Icahn has himself shown, the system of corporate money in America is malleable. Its players can learn the rules of the game and adapt. Quarter after quarter since the dark days of the pandemic, Hollub turned up on corporate earnings calls pledging to keep cash flows strong, to invest in the highest-returning assets, and not to fall into the trap of overinvesting in debt-fueled or expensive production capacity, as so many failed shale producers have done in the past. She’s driven the company’s debt from nearly $40 billion following the Anadarko acquisition to less than $20 billion today. She increased the company’s dividend earlier this year. Along the way she transformed from market pariah to textbook CEO.
Hollub and other CEOs who run America’s biggest shale-oil producers have learned from the industry’s past mistakes. After proving a decade ago they could successfully extract shale oil, many U.S. oil producers were cheered on by growth and momentum stock investors as they borrowed billions to ramp up production, only to have those same investors abandon them after Saudi Arabia induced a plunge in oil prices. In the years that followed, U.S. shale-oil producers cultivated a new set of more value-oriented shareholders by promising they would share in profits through dividends and stock buybacks. Hollub and many of those other CEOs are not interested in chasing unrestrained growth again.
The world’s most famous value investor is now also on board. For Buffett, an earnings call Hollub led in February was the turning point. “I read every word, and said this is exactly what I would be doing. She’s running the company the right way,” Buffett told CNBC. Berkshire Hathaway BRK.A, +0.15%
started buying Occidental stock soon after. In August, federal regulators gave Buffett’s company permission to buy up to half of the company. (Asked for comment, a representative of Berkshire Hathaway asked for questions by email but did not respond to them.)
The markets are rife with speculation that Buffett will go all the way and purchase the entire company, though neither Hollub nor Berkshire have said as much. Hollub said simply that Buffett is bullish on oil, so she expects him to invest for the long haul. A Buffett buyout wouldn’t necessarily be a win for the investors who’ve hung on as Occidental’s stock price has recovered. “I’d probably make more money if he doesn’t buy it,” said Smead.
Warren Buffett is back to betting on Hollub and bought 20% of Occidental’s stock this year.
Johannes Eisele/Agence France-Presse/Getty Images
Where Hollub might cause real trouble is in the fight to keep carbon dioxide out of the earth’s atmosphere. That’s not because she’s a climate-denier. Far from it. Like many of her fellow oil-and-gas CEOs in recent years, Hollub has come to see climate change not as a threat to the business, but as an opportunity to be managed.
“I know some people don’t want oil to be produced for very long, but it’s going to be,” Hollub said. For that to change, people have to start using less oil. “It’s not that the more supply we generate, then the more that people are gonna use. It’s all driven by demand,” she said. And even with an electric vehicle in every driveway, we’d still need to extract oil to produce plastics and to create airplane fuel, among other projects that fall under the category of hard-to-abate emissions.
Hollub’s plan for Occidental is to wrap the company around that lingering stream of demand for hydrocarbons. She says Occidental is now in the business of carbon management, a euphemism that glides over the messiness of the climate transition and companies’ role in it. Companies need to show anxious shareholders that they’re serious about reducing their carbon emissions, but they also need to keep operating in an economy that is still seriously short on meaningful alternatives to fossil fuels. Occidental is here to help, spurred along by a series of state and federal incentives that the company lobbied for over years, culminating in the passage this year of the Inflation Reduction Act.
Climate advocates have for years tried to make the use of fossil fuels reflect their full cost on the environment. That has put them deeply at odds with oil-and-gas executives like Hollub, who opposes carbon taxes. It’s also left U.S. climate policy stalled as the planet warms. But the IRA tries something else. “I do not see the IRA as a handout to the energy industry,” said Sasha Mackler, executive director of the energy program at the Bipartisan Policy Center, a D.C. think tank. Rather than making dirty energy more expensive, the IRA tries to make clean energy cheaper, Mackler said. And that’s something Hollub can get on board with. She’s selling the idea that a barrel of oil can be clean.
Getting to a net-zero barrel of oil, as Hollub calls it, involves literally rerouting the route carbon dioxide takes through the world. For companies like Occidental, CO2 isn’t just a planet-destroying waste product. It’s a critical input to the process of oil production. Engineers can use CO2 to essentially juice aging oil wells by pumping it underground to displace hydrocarbons. The process is called enhanced oil recovery, or EOR. Occidental is the industry leader, producing the equivalent of 130,000 barrels per day of EOR oil and gas as of 2020. And that oil can, in theory, be less impactful on the climate. “We have it documented that it takes more CO2 injected into the reservoir than what the incremental barrels from that CO2 that are produced will emit when they’re used,” she said.
The trick is where that injected CO2 comes from. The Permian is crisscrossed with thousands of miles of pipelines that bring CO2 to oil fields from as far away as Colorado. At the moment, the vast majority comes from naturally occurring reservoirs or as a byproduct of the production of methane. One of the strangest ironies of modern oil production is that companies like Occidental don’t actually have enough CO2. “There’s two billion barrels of resources remaining to be developed in our conventional reservoirs using CO2,” Hollub said.
So she and her team went out looking for more. Eventually they hit on the idea that’s encapsulated in the IRA. Instead of pulling CO2 out of the ground only to put it back, Occidental could divert some of the CO2 that’s being produced by so-called industrial sources, companies that would otherwise be dumping it into the atmosphere because, of course, there’s no business reason not to.
Finding companies that wanted to do the right thing with their waste CO2 turned out to be harder than Hollub thought. “We knocked on the doors of a lot of emitters,” Hollub said. They found one taker—a Texas ethanol producer that was willing to try a pilot. It was a decent start but not enough to unlock all those buried barrels.
That may soon change, driven by the IRA. The law puts new financial incentives behind those conversations Occidental was having with CO2 emitters. The IRA significantly beefed up the so-called 45Q tax incentive for companies to put CO2 permanently in the ground. Occidental can get $60 a ton in tax credits if the CO2 is stored in the process of pumping more oil for EOR, or $85 if the company just buries it.
There’s also a higher tier of incentives if companies obtain that CO2 using an experimental technology called direct air capture. Occidental is spending $1 billion to build what would be the world’s largest direct-air-capture facility in Texas, which you can loosely think of as a giant fan to suck ambient CO2 directly out of the atmosphere. Hollub plans to build as many as 70 by 2035.
The problem some see with this plan, and with Hollub and others’ efforts to shape legislation around it, is it tightens the economy’s dependence on fossil fuels rather than loosening it. Americans will now effectively pay Occidental to pursue more enhanced oil recovery. Those net-zero barrels of oil—should they materialize—might be better in climate terms than a traditional barrel. But that’s not the only alternative. Dollar for dollar, public money would be better spent on solar energy and other low-carbon options than on EOR, said Kurt House, who knows as much because he’s tried it. House got a Ph.D. at Harvard in the science of carbon capture and storage more than a decade ago and co-founded a company to put the idea into practice. “It is bad, bad economics,” he said. “If you pay people a million dollars a ton of CO2 sequestering, they will sequester a lot of CO2. But it’ll cost us. It’ll make solving global warming much, much, much, much, much more expensive.”
But Hollub isn’t likely to change course. “I would say to those who don’t like what we’re doing, who do they want to do this? Tell me who have they gotten to, that will commit to take CO2 out of the atmosphere?” she said. “This climate transition cannot happen as fast as some people want it to happen because the world can’t afford it,” Hollub said. “We’re looking at, you know, $100 to $200 trillion for this climate transition. We cannot spend that kind of money to make this transition happen without help from diverting some of the CO2 to enhanced oil recovery, which enables then the technology to be developed and to be built at a faster pace.” And in the meantime, Occidental can sell carbon offsets to companies like United Airlines, which is supporting the direct-air-capture facility.
Those companies can choose whether they want the CO2 Occidental is capturing to be buried, full stop, or used for more oil production. But it’s clear Hollub thinks EOR is a big part of the future for Occidental. She has often said that the last barrel of oil should come from EOR. “I think there could be a world where we do stop drilling new wells,” she said. “To increase recovery from the remaining conventional reservoirs is something that’s kind of like a best kept secret for the United States. Nobody very much realizes that, but that is there. And that gives us that longevity beyond what some people are forecasting,” Hollub said.
Hollub is well-aware of her critics. Perhaps that’s why she keeps looking around for signs of trouble. But even if it finds her, she doesn’t plan to change much. “I have no regrets,” she said.
European gas prices are expected to drop to 85 euros megawatt hour in the coming months, said Goldman Sachs
Krisztian Bocsi | Bloomberg | Getty Images
Goldman Sachs predicts that European natural gas prices would drop by about 30% in the coming months as nations gain a temporary upper hand on supply issues.
The Dutch Title Transfer Facility (TTF) is Europe’s main benchmark for natural gas prices. It traded at around 120 euros per megawatt hour on Tuesday. But Goldman Sachs expects this benchmark to fall to 85 euros per megawatt hour in the first quarter of 2023, according to a research note published last week.
This would mark a significant change to the levels seen back in August. At the time, Russia’s unprovoked invasion of Ukraine and the subsequent pressures on Europe’s energy mix pushed prices to historic figures — above 340 euros per megawatt hour.
The recent cooling in gas prices has derived from several factors: Europe’s gas storage is basically full for this winter season; temperatures this fall have been milder than expected thus delaying the start of a period of heavy usage; and there is an oversupply of liquefied natural gas (LNG).
Recent reports have pointed to about 60 vessels waiting to discharge their LNG cargo in Europe. Some of these shipments were bought during the summer and are just arriving now as storage fills up. Indeed, the latest data compiled by industry group Gas Infrastructure Europe shows storage levels in Europe are sitting at 94%.
Despite optimism on lower gas prices in the near term, which may alleviate some of the cost-of-living crisis, there’s plenty of pressure on European leaders to secure supplies in the medium term.
“Our commodity team forecasts a further decline to 85 euros in the first quarter before sharply picking up into next summer as storage levels are rebuilt,” Goldman Sachs analysts said in the research note. Their forecasts point to a surge in prices to just below 250 euros per megawatt hour by the end of July.
Natural gas prices are expected to pick up after the first three months of 2023 due to several factors.
Fatih Birol, executive director of the International Energy Agency, told CNBC’s Julianna Tatelbaum Friday that only a very small amount of new LNG will hit the market next year. “If China economy sees a rebound, next year the LNG import of China may also increase together with Europe,” he said.
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China was the world’s top importer of LNG in 2021, according to the U.S. Energy Information Administration. However, due to its strict Covid-19 policy, the Chinese economy has had to deal with a number of lockdowns which have dented growth. Any change in this political approach would increase demand for LNG and push up prices for European buyers too.
Additionally, gas storage has been helped by Russian supplies which the EU has been trying to ween itself off. Even Xavier Bettel, the prime minister of Luxembourg, an EU nation, acknowledged in October that storage was full with Russian gas. Russian supplies have since been severely disrupted and it’s Europe’s aim to be completely free from Russian fossil fuels.
The CEO of EDP, Portugal’s utilities firm, summed it up when speaking to CNBC’s “Squawk Box Europe” Friday. “Certainly we are in a much better place than we were a couple of months ago,” Miguel Stilwell d’Andrade said, but “we should expect a lot of volatility going forward.”
View of the bulk fuel plant in Dhahran, Saudi Arabia. Because the kingdom needs oil prices to remain high to balance its budget, it pushed OPEC and its allies to decide on a production cut as of Nov. 1. CREDIT: Aramco
by Humberto Marquez (caracas)
Inter Press Service
CARACAS, Nov 01 (IPS) – The decision to cut oil production by the Organization of Petroleum Exporting Countries (OPEC) and its allies as of Nov. 1 comes in response to the need to face a shrinking market, although it also forms part of the current clash between Russia and the West.
The OPEC+ alliance (the 13 members of the organization and 10 allied exporters) decided to remove two million barrels per day from the market, in a world that consumes 100 million barrels per day. The decision was driven by the two largest producers, Saudi Arabia – OPEC’s de facto leader – and Russia.
The cutback “is due to economic reasons, because Saudi Arabia depends on relatively high oil prices to keep its budget balanced, so it is important for Riyadh that the price of the barrel does not fall below 80 dollars,” Daniela Stevens, director of energy at the Inter-American Dialogue think tank, told IPS.
The benchmark prices at the end of October were 94.14 dollars per barrel for Brent North Sea crude in the London market and 88.38 dollars for West Texas Intermediate in New York.
“At the time of the cutback decision (Oct. 5) oil prices had fallen 40 percent since March, and the OPEC+ countries feared that the projected slowdown in the global economy – and with it demand for oil – would drastically reduce their revenues,” Stevens said.
With the cut, “OPEC+ hopes to keep Brent prices above 90 dollars per barrel,” which remains to be seen “since due to the lack of investment the real cuts will be between 0.6 and 1.1 million barrels per day and not the more striking two million,” added Stevens from her institution’s headquarters in Washington.
A month ago, the alliance set a joint production ceiling of 43.85 million barrels per day, not including Venezuela, Iran and Libya (OPEC partners exempted due to their respective crises), which would allow them to deliver 48.23 million barrels per day to the market.
But market operators estimate that they are currently producing between 3.5 and five million barrels per day below the maximum level considered.
The alliance is made up of the 13 OPEC partners: Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela, plus Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan and South Sudan.
The giants of the alliance are Saudi Arabia and Russia, which produce 11 million barrels per day each, followed at a distance by Iraq (4.65 million), United Arab Emirates (3.18), Kuwait (2.80) and Iran (2.56 million).
In July, U.S. President Joe Biden met with Saudi Crown Prince Mohammed bin Salman, with whom he discussed human rights and abundant oil supplies for the global market. A few months later Riyadh led the decision for an oil cut that has been seen as a betrayal by Washington. CREDIT: Bandar Algaloud/SRP
United States takes the hit
U.S. President Joe Biden was “disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of (Russian President Vladimir) Putin’s invasion of Ukraine,” a White House statement said.
The price of gasoline in the United States has soared from 2.40 dollars a gallon in early 2021 to the current average of 3.83 dollars – after peaking at five dollars in June – a heavy burden for Biden and his Democratic Party in the face of the Nov. 8 mid-term elections for Congress.
Biden visited Saudi Arabia in July, while the press reminded the public that during his 2020 election campaign he talked about making the Arab country “a pariah” because of its leaders’ responsibility for the October 2018 murder in Istanbul of prominent opposition journalist in exile Jamal Khashoggi.
The U.S. president said he made clear to the powerful Saudi Crown Prince Mohammed bin Salman his conviction that he was responsible for the crime. But the thrust of his visit was to urge the kingdom to keep the taps wide open to contain crude oil and gasoline prices.
Hence the U.S. disappointment with the production cut promoted by Riyadh – double the million barrels per day predicted by market analysts – which, by propping up prices, favors Russia’s revenues, which has had to place in Asia, at a discount, the oil that Europe is no longer buying from it.
Biden then announced the release of 15 million barrels of oil from the U.S. strategic reserve – which totaled more than 600 million barrels in 2021 and just 405 million this October – completing the release of 180 million barrels authorized by Biden in March, following the Russian invasion of Ukraine, that was initially supposed to occur over six months.
Saudi Crown Prince Mohammed bin Salman and President Vladimir Putin chat cordially during a visit by the Russian leader to Riyadh in October 2019. The two major oil exporters lead the 23-state alliance that upholds production cuts to prop up prices. CREDIT: SPA
Shift in Washington-Riyadh relations
Karen Young, a senior research scholar at the Center on Global Energy Policy at Columbia University in New York, wrote that “oil politics are entering a new phase as the U.S.-Saudi relationship descends.”
“Both countries are now directly involved in each other’s domestic politics, which has not been the case in most of the 80-year bilateral relationship,” she wrote.
“….(M)arkets had anticipated a cut of about half that much. Whether the decision to announce a larger cut was hasty or politically motivated by Saudi political leadership (rather than technical advice) is not clear,” she added.
Saudi leaders could apparently see Biden as pandering to Iran, its archenemy in the Gulf area, with positions adverse to Riyadh’s in the conflict in neighboring Yemen, and would resent the accusation against the crown prince for the murder of Khashoggi.
Young argued that “the accusation that Saudi Arabia has weaponized oil to aid Russian President Vladimir Putin is extreme,” and said “The Saudi leadership may assume that keeping Putin in the OPEC+ tent is more valuable than trying to influence oil markets without him.”
Gasoline prices in the United States, while down from their June level of five dollars per gallon, are still at a high level for many consumers ahead of the upcoming midterm elections. CREDIT: Humberto Márquez/IPS
More market, less war
OPEC’s secretary general since August, Haitham Al Ghais of Kuwait, said on Oct. 7 that “Russia’s membership in OPEC+ is vital for the success of the agreement…Russia is a big, main and highly influential player in the world energy map.”
Writing for the specialized financial magazine Barron’s, Young stated that “What is certainly true is that energy markets are now highly politicized.”
“The United States is now an advocate of market manipulation, asking for favors from the world’s essential swing producer, advocating price caps on Russian crude exports and embargoes in Europe,” Young wrote.
For its part, the Saudi Foreign Ministry rejected as “not based on facts” the criticism of the OPEC+ decision, and said that Washington’s request to delay the cut by one month (until after the November elections, as the Biden administration supposedly requested) “would have had negative economic consequences.”
In its most recent monthly market analysis, OPEC noted that “The world economy has entered into a time of heightened uncertainty and rising challenges, amid ongoing high inflation levels, monetary tightening by major central banks, high sovereign debt levels in many regions as well as ongoing supply issues.”
It also mentioned geopolitical risks and the resurgence of China’s COVID-19 containment measures.
The two million barrel cut was decided “In light of the uncertainty that surrounds the global economic and oil market outlooks, and the need to enhance the long-term guidance for the oil market,” said the OPEC+ alliance’s statement following its Oct. 5 meeting.
Oil analyst Elie Habalian, who was Venezuela’s governor to OPEC, also opined that “notwithstanding Mohammed bin Salman’s sympathy for Putin, the cut was due to his concern about the balance of the world oil market, and not to support Russia.”
Latin America, pros and cons
Stevens said the oil outlook that opens up this November will mean, for importers in the region, that their fuels will be more expensive but probably not by a significant amount, and net importers in Central America and the Caribbean will be the hardest hit.
Exporters will benefit from higher prices. Brazil and Mexico have already increased their exports of fuel oil, and Argentina and Colombia have hiked their exports of crude oil. And higher prices would particularly benefit Brazil and Guyana, which are boosting their production capacity.
Argentina could have benefited if it had begun to invest in production years ago, but its financial instability left it with little capacity to take advantage of this moment. And Venezuela not only faces sanctions, but upgrading its worn-out oil infrastructure would require investments and time that it does not have.
ABU DHABI, United Arab Emirates — President Joe Biden is making no secret of his frustration with high gas prices and the oil companies making record profits as a result. With the support of Democratic allies in Congress, he is threatening to levy windfall taxes on energy firms, a prospect that’s prompted backlash from the industry.
The president on Monday tweeted: “The oil industry has a choice. Either invest in America by lowering prices for consumers at the pump and increasing production and refining capacity. Or pay a higher tax on your excessive profits and face other restrictions.”
The language sets up what looks like a standoff between the U.S. oil industry and the Biden administration at a time of high energy prices, soaring inflation and worries of a global crude supply shortage after years of under-investment in the industry and several months of sanctions on Russian commodities for its war in Ukraine.
But reports of animosity between the White House and America’s energy giants are overhyped, says Amos Hochstein, Biden’s special presidential coordinator, who liaises closely with energy industry leaders domestically and around the world.
The Biden administration is not anti-profit or anti-free market, he stressed; rather, it wants to see oil companies reinvest their profits in improving crude production and the country’s energy security.
“I talk to the CEOs, other senior members of the administration talk to the CEOs on a regular basis,” Hochstein told CNBC’s Hadley Gamble Monday, when asked about the administration’s relationship with industry executives.
“People know that. I don’t think that’s the issue. The issue is this: we want them to increase their capex, increase investment,” he said. “The price environment for the last year, over a year now, lends itself to investment. So take those profits that you’re making. We’re not against profits. What we do want, and the president said this last week — take those profits and invest them.”
Congressional Democrats argue that oil executives are prioritizing shareholder returns over reinvesting profits toward boosting production that could lower consumer prices. Hochstein held the position that shareholder returns are not an issue in themselves, but that increasing America’s energy supplies should be the priority.
“You want to pay some back to shareholders? Some is fine,” he continued. “But not excessively. You want to take these profits, that’s fine too. But not excessively. We’re in a war and you can do more to increase production.”
Several major oil companies have raked in record profits this year as consumers grappled with soaring gas and energy bills. ExxonMobil reported a record $19.7 billion net profit for the third quarter, and Biden this week accused the Texas-based company of using that to reward shareholders and buy back its own stock rather than investing in production improvements that could ease prices at the pump.
California-based Chevron made $11.23 billion in profits in the third quarter, just shy of the record it hit in the previous quarter. In the last two quarters, Chevron, ExxonMobil, ConocoPhillips and Britain’s BP, Shell and France’s TotalEnergies reportedly made over $100 billion in profits — more than they earned in the entirety of 2021.
Exxon Mobil CEO Darren Woods, speaking to CNBC last week, said his company was committed to addressing both shareholder returns and improving production, regardless of who was in the White House.
“We don’t really look to satisfy one administration or the other. We look to make sure we’re doing the best we can using our shareholders’ money appropriately, finding advantaged projects that allow us to grow production and grow value. We’re also looking at reducing our emissions,” he told CNBC’s “Squawk Box.”
But Hochstein says he doesn’t see sufficient investment on a broad scale.
“All I see is record profits that are not translating to sufficiently increased investment and where investments are not keeping up with average ratios of investment-to-price increase,” he said.
Many in the oil industry argue that a windfall tax is counterproductive and would harm production and investment. Still, the threat of such taxes from the Democratic leadership is likely more of a pressure tactic than a plausible policy proposal in the near-term since Congress is not in session. And it could even become impossible to carry out if Republicans, who largely oppose such a move, win one or both houses in the November midterm elections.
Biden came into office campaigning hard for an end to fossil fuel use and a transition to renewables as part of his climate-focused agenda, laying out a bevy of regulations on oil and gas exploration and production. Supporters of Biden’s green energy goals say this aggressive push was needed to reverse what they describe as damage done by former President Donald Trump, who rolled back years of work on environmental protections and pulled the U.S. out of the Paris Climate Accords.
But it was that policy push, those in the fossil fuel industry argue, that helped throttle investment in oil and gas production and subsequently led to the energy supply shortages and higher prices we see today. Now, faced with a tightening global oil and gas market, climbing demand, and a war in Europe, the administration is taking a different tone.
“Look, it’s no secret that the Biden administration and oil industry do not see eye-to-eye on the long term role that oil will play in the economy,” Hochstein said. “However, we have to do two things. We need more investment in oil production and refining, now.”
The longtime energy policy veteran pointed out that much of the initial regulations and restrictions have eased — and noted that under this administration, the U.S. is approaching pre-pandemic highs in oil production levels, even despite what he says is insufficient activity from oil companies.
Occidental Petroleum CEO Vicki Hollub contradicted the narrative that the Biden administration was ignoring oil companies. Speaking to CNBC in Abu Dhabi, she said she indeed communicates with U.S. Energy Secretary Jennifer Granholm, a vocal climate policy advocate.
“I do hear from Secretary Granholm — she is focused on tech, she’s enthusiastic about the climate transition, she listens, she [communicates with] the National Petroleum Council and has sent us requests for studies to be conducted to help her in making her decisions” concerning clean energy investments, Hollub said.
Whatever the disagreements on the longer-term role of the fossil fuel industry in the U.S., oil executives and White House officials appear to agree on one thing — they will need to communicate properly to ensure future energy security for the country at a time of severe economic and geopolitical risk.
UK dismisses allegations as false, says they are aimed at diverting attention away from military failures in Ukraine.
Russia has again accused the United Kingdom of carrying out attacks on the Nord Stream undersea gas pipelines, with Moscow saying it is considering what “further steps” to take over the alleged acts of sabotage.
“Our intelligence services have data indicating that British military specialists were directing and coordinating the attack,” Kremlin spokesman Dmitry Peskov told journalists on Tuesday, without providing any evidence to support his claim.
“Such actions cannot be put aside. Of course, we will think about further steps. It definitely cannot be left like this,” he added.
Peskov’s remarks came after Russia’s defence ministry said on Saturday that British navy personnel had blown up sections of the Nord Stream 1 and 2 pipelines in September, when a series of ruptures caused major leaks, sending gas spewing out off the coast of Denmark and Sweden.
The UK has dismissed the allegations as false and said they are designed to divert attention away from Russian military failures in Ukraine, with British Prime Minister Rishi Sunak’s spokesman saying on Tuesday that the claims were part of the “Russian playbook”.
“Obviously, we’re carefully monitoring the situation, but it is right to not be drawn into these sorts of distractions which is part of the Russian playbook,” Sunak’s spokesman told reporters.
“They continue their indiscriminate bombardment of civilians and attacks on civilian infrastructure. That is our focus, and we will continue to provide support so that they lose this illegal war.”
The ruptures on the Nord Stream pipelines have threatened to put the multibillion-dollar gas link permanently out of use.
Peskov said no decision had been taken as of yet on whether to repair the Russian-controlled pipelines as Moscow is awaiting an expert assessment of the damage caused.
Sweden last week ordered additional investigations to be carried out on the damage.
Western officials have linked the ruptures to “sabotage”, but have held back from attributing responsibility for the blasts while investigations by German, Danish and Swedish authorities continue.
Russian President Vladimir Putin has repeatedly made unsubstantiated claims the United States and Ukraine’s Western allies were behind the explosions.
Oil and gas giant BP on Tuesday reported stronger-than-expected third-quarter profits, supported by high commodity prices and robust gas marketing and trading.
The British energy major posted underlying replacement cost profit, used as a proxy for net profit, of $8.2 billion for the three months through to the end of September. That compared with $8.5 billion in the previous quarter and marked a significant increase from a year earlier, when net profit came in at $3.3 billion.
Analysts polled by Refinitiv had expected third-quarter net profit of $6 billion.
BP announced another $2.5 billion in share repurchases and said net debt had been reduced to $22 billion, down from $22.8 billion in the second quarter.
It reported a net loss for the quarter of $2.2 billion, compared with a profit of $9.3 billion in the previous quarter. BP said this third-quarter result included inventory holding losses net of tax of $2.2 billion and a charge for adjusting items net of tax of $8.1 billion.
The world’s largest oil and gas majors have reported bumper earnings in recent months, benefitting from surging commodity prices following Russia’s invasion of Ukraine.
Combined with BP, oil majors Shell, TotalEnergies, Exxon and Chevron have posted third-quarter profits totaling nearly $50 billion.
This has renewed calls for higher taxes on record oil company profits, particularly at a time when surging gas and fuel prices have boosted inflation around the world.
U.S. President Joe Biden on Monday called on oil majors to stop “war profiteering” and threatened to pursue higher taxes if industry giants did not work to cut gas prices.
Oil and gas industry groups have previously condemned calls for a windfall tax, warning it would fail to resolve a sharp upswing in energy prices and could ultimately deter investment.
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“This quarter’s results reflect us continuing to perform while transforming,” BP CEO Bernard Looney said in a statement.
“We remain focused on helping to solve the energy trilemma – secure, affordable and lower carbon energy. We are providing the oil and gas the world needs today – while at the same time – investing to accelerate the energy transition,” Looney said.
Shares of London-listed BP rose nearly 1% during morning deals. The firm’s stock price is up over 45% year-to-date.
Environmental campaign groups said BP’s third-quarter results underscored the need for a windfall tax, describing the results as “a slap in the face” for the millions of Britons facing a deepening cost-of-living crisis.
“The case for a bigger, bolder windfall tax is now overwhelming,” said Sana Yusuf, energy campaigner at Friends of the Earth. “This must address the ridiculous loophole that undermines the levy by enabling companies to pay the bare minimum if they invest in more planet-warming gas and oil projects.”
“Some of the billions of pounds raised should be used to pay for a street-by-street, home insulation programme to cut energy bills and reduce emissions,” Yusuf said.
“A proper windfall tax on the profits of big polluters is no longer a far cry, it is now a necessity,” said Jonathan Noronha-Gant, senior fossil fuels campaigner at Global Witness.
“But the new U.K. Government must also urgently put us on track for a rapid transition away from dirty fossil fuels and onto renewables and decent home insulation, so we can fix this broken energy system once and for all.”
Speaking at the ADIPEC conference in the United Arab Emirates on Monday, BP CEO Bernard Looney said on a panel moderated by CNBC that he understood the public scrutiny on oil majors’ record profits, but sought to defend the firm’s record when it comes to investing and paying taxes.
“We are facing a very difficult winter ahead in the U.K., in Europe and right across the world,” Looney said.
“Our job is to pay our taxes; our job is to invest. We just announced a $4 billion acquisition in the United States just last week in renewable natural gas so that’s what our job is to do. We will continue to do that and do the very best that we can,” he added.
PCK Schwedt oil refinery in Schwedt, Germany on Monday, May 9, 2022.
Krisztian Bocsi | Bloomberg | Getty Images
ABU DHABI, United Arab Emirates — Politicians and governments around the world are bracing for potential civil unrest as many countries grapple with mounting energy costs and rising inflation.
The global economy is facing an onslaught from multiple sides — a war in Europe, and shortages of oil, gas and food, and high inflation, each of which has worsened the next.
Concerns are centered on the coming winter, especially for Europe. Cold weather, combined with an oil and gas shortage stemming from Western sanctions on Russia for its invasion of Ukraine, threatens to upend lives and businesses.
But as much concern as there is ahead of this winter, it’s really the winter of 2023 that people should be worried about, major oil and gas executives have warned.
Energy prices “are approaching unaffordability,” with some people already “spending 50% of their disposable income on energy or higher,” BP CEO Bernard Looney told CNBC’s Hadley Gamble during a panel at the Adipec conference in Abu Dhabi.
We are in good shape for this winter. But as we said, the issue is not this winter. It will be the next one, because we are not going to have Russian gas.
Claudio Descalzi
CEO of Eni
But through a combination of high gas storage levels and government spending packages to subsidize people’s bills, Europe may be able to manage the crisis this year.
“I think it has been addressed for this winter,” Looney said. “It’s the next winter I think many of us worry, in Europe, could be even more challenging.”
The CEO of Italian oil and gas giant Eni expressed the same worry.
For this winter, Europe’s gas storage is around 90% full, according to the International Energy Agency, providing some assurance against a major shortage.
But a large proportion of that is made up of Russian gas imported in previous months, as well as gas from other sources that was easier than usual to buy since major importer China was buying less due to its slower economic activity.
“We are in good shape for this winter,” Eni chief Claudio Descalzi said during the same panel. “But as we said, the issue is not this winter. It will be the next one, because we are not going to have Russian gas – 98% [less] next year, maybe nothing.”
This could lead to serious social unrest — already, small to medium-sized protests have cropped up around Europe.
Anti-government protests in Germany and Austria in September and in the Czech Republic last week — the latter of which has seen household energy bills surge tenfold — may be a small taste of what’s to come, analysts have warned. Some energy executives agreed.
Yes, there is a real risk that governments without a steady hand on policy shaping in Asia can deal with unrest.
Datuk Tengku Muhammad Taufik
CEO of Petronas
“We’ve seen that any shocks to the price at the pump, or something as simple as LPG [liquefied petroleum gas] for cooking, can cause unrest,” the CEO of Malaysian oil and gas company Petronas, Datuk Tengku Muhammad Taufik, said.
He described how a strengthening dollar and rising fuel prices pose a serious risk to many Asian economies – massive populations that are some of the biggest oil and gas importers in the world. And this is happening while subsidies are already in place to help ease prices for citizens.
Inflation in the euro zone remains extremely high. Protestors in Italy used empty shopping trolleys to demonstrate the cost-of-living crisis.
Many Asian economies were already reeling from the pandemic, which caused “vast swaths of [small and medium enterprises] in Asia to just collapse,” Taufik said. “So, yes, there is a real risk that governments without a steady hand on policy shaping in Asia can deal with unrest.”
Much of the anger of protesters is also directed at the energy companies, which have been making record profits as bills get higher and higher.
Responding to this, many of the CEOs who spoke to CNBC said it’s an issue of market supply and demand, and that it’s up to governments to implement policies more conducive to energy investment. That investment, they stressed, has taken a hit in recent years as countries push for the transition to renewables.
The world has to face “the practicalities and realities of today and tomorrow,” BP’s Looney said, stressing the need to “invest in hydrocarbons today, because today’s energy system is a hydrocarbon system.”
Many policymakers and institutions still decry the use of fossil fuels, warning the far bigger crisis is that of climate change. In June, United Nations Secretary General Antonio Guterres called for abandoning fossil fuel finance, and called any new funding for exploration “delusional.”
The oil executives argued that this approach simply isn’t realistic, nor is it an option if countries want economic and political stability.
Read more about energy from CNBC Pro
At the same time, however, they admitted that the energy transition itself does need greater focus and investment in order to avert a larger crisis next year and beyond, when there is no Russian gas in storage and other options are increasingly expensive.
“In Europe, we pay at least six, seven times to [as much as] 15 times the energy costs with respect to the U.S.,” ENI’s Descalzi said.
“So what we have done in Europe, each country, gave incentive subsidies to try to reduce the cost for industry and for citizens. How long that can continue?” he asked.
“I don’t know, but it’s impossible that it can continue forever. All these countries have a very high debt,” he said. “So they have to find a structural way to solve this issue. And the structural way is what we said until now — we have to increase and be faster on the transition. That is true.”
“But,” he added, “we have to understand, from a technical point of view, what is affordable and what is not.”
PRAGUE — U.S. Trade Representative Katherine Tai traveled more than 4,000 miles to prevent a transatlantic trade war over electric vehicles, but her EU counterparts signaled on Monday that they would be a tough crowd to win round.
The growing spat hinges on U.S. legislation that encourages consumers via tax credits to “Buy American” when it comes to choosing an electric car.
At a time when the U.S. and Europe want to present a united front against Russia, this protectionist measure has triggered outrage in many EU countries, including France and Germany, two leading European carmaking nations. Beyond the EU, China, Japan and South Korea have also voiced concern.
After speaking with Tai at a meeting of EU ministers in Prague, the bloc’s trade chief Valdis Dombrovskis predicted it would be difficult to resolve the dispute.
“It will not be easy to fix it — but fix it we must,” he said.
Among the 27 EU countries, anxiety about the U.S. measure is growing. Sweden’s new trade minister, Johan Forssell, whose country takes over the presidency of the Council of the EU in January, told POLITICO on Sunday that aspects of the U.S. legislation were “worrying” and “not in accordance with [World Trade Organization] rules.”
Another senior official stressed: “It’s not only one or two member states, which are concerned … It’s also the small ones; they will have no access at all” to the U.S. market.
French President Emmanuel Macron and German Chancellor Olaf Scholz agreed over lunch last week that the EU should retaliate if Washington pushed ahead with the controversial bill. Macron floated the idea of a “Buy European Act” to strike back.
The new tax credits for electric vehicles are part of a huge U.S. tax, climate and health care package, known as the Inflation Reduction Act, which passed the U.S. Congress in August.
The idea is that a U.S. consumer can claim back $7,500 of the value of an electric car from their tax bill. To qualify for that credit, however, the car needs to be assembled in North America and contain a battery with a certain percentage of the metals mined or recycled in the U.S., Canada or Mexico.
Czech Trade Minister Jozef Síkela, whose country currently holds the presidency of the Council of the EU, said that European carmakers wanted to qualify for the scheme, just as the North Americans do.
In its current form, the bill is “unacceptable,” and “is extremely protective against exports from Europe,” said Síkela as he walked into Monday’s meeting. “We simply expect that we will get the same status as Canada and Mexico.”
U.S. Trade Representative Katherine Tai and European Commission Executive Vice President Valdis Dombrovskis | Jim Watson/AFP via Getty Images
“But we need to be realistic,” Síkela told reporters later. “This is our starting point in the negotiations and we’ll see what we’ll manage to negotiate at the end.”
In a bid to soothe tensions, a joint task force was set up last week by the European Commission and the U.S. The task force is supposed to meet at the end of this week, although the exact date isn’t yet fixed, according to thesenior official.
Asked whether Brussels would retaliate should no agreement be struck with Washington, Dombrovskis took a cautious approach: “Setting up this task force is already … a response of us, raising those concerns … At this stage, we are focusing on a negotiated solution before considering what other options there may be.”
The midterm elections in the U.S., where President Joe Biden’s Democrats look likely to lose ground, compound the difficulties.
It doesn’t seem like the tensions will be eased by the next Trade and Technology Council, which takes place between U.S. and European negotiators in early December.
Dismay over the U.S. subsidies has overshadowed the preparatory work for the next TTC meeting, for which the EU and businesses on both sides of the Atlantic want to see rapid concrete results to avoid the perception that the format is simply a talking shop.
Tai herself had no immediate comment in Prague, but later released a statement on her meeting with Síkela that gave no hint of a breakthrough.
“Ambassador Tai and Minister Síkela discussed the ongoing work of the Trade and Technology Council, and the importance of achieving meaningful results for the December TTC Ministerial and beyond. They also discussed the newly-created U.S.-EU Task Force on the Inflation Reduction Act,” the statement said.
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President Joe Biden on Monday will speak about major oil XLE, +0.77%
companies’ record-setting profits, “even as they refuse to help lower prices at the pump for the American people,” the White House announced. Biden’s remarks are scheduled for 4:30 p.m. Eastern in the Roosevelt Room of the White House, and come just over a week before key U.S. midterm elections, in which energy prices and inflation are playing a critical role.
Poland awarded a contract to build its first nuclear power plant to a U.S. bid as the country seeks to burn less coal and increase its energy independence.
The government in Warsaw chose Westinghouse for the nuclear project, Prime Minister Mateusz Morawiecki said late Friday in a tweet praising the U.S. company’s “reliable, safe technology.”
“A strong Poland-U.S. alliance guarantees the success of our joint initiatives,” Morawiecki said.
Westinghouse reportedly beat out France’s EDF and South Korean state-run company Korea Hydro & Nuclear Power for the contract.
Polish government spokesman Piotr Mueller said on Saturday that the administration would adopt a decision at a meeting on Wednesday that will launch environmental approval and investment procedures, the Associated Press reported. Mueller said the nuclear plant in northern Poland would require improving infrastructure in the area, including roads.
U.S. Energy Secretary Jennifer Granholm welcomed Warsaw’s decision, calling it a “huge step in strengthening our relationship with Poland for future generations to come.”
“This announcement also sends a clear message to Russia: We will not let them weaponize energy any longer,” Granholm said in a tweet. “The West will stand together against this unprovoked aggression, while also diversifying energy supply chains and bolstering climate cooperation.”
The Dow Jones Industrial Average rose nearly 600 points on Friday to its highest level in two months as the blue-chip gauge remained on track for a sixth straight session in the green in what would be its longest winning streak since May 27, according to Dow Jones Market Data.
All three major indexes were trading higher as expectations that the Federal Reserve will shift toward smaller interest-rate hikes after its November meeting have offset weak earnings this week from some of the market’s biggest megacap technology names.
How are stocks trading?
The S&P 500 SPX, +1.67%
gained 59 points, or 1.6%, to 3,866.
The Dow Jones Industrial Average DJIA, +1.98%
rose 589 points, or 1.8%, to 32,623.
The Nasdaq Composite COMP, +1.80%
advanced 181 points, or 1.7%, to 10,974.
Both the S&P 500 and Nasdaq were on track to cement their second weekly gain in a row on Friday, although the tech-heavy Nasdaq has substantially lagged after Thursday’s performance, where it was the only one of the major indexes to finish in the red following abysmal earnings from Meta Platforms Inc.
Barring an intraday turnaround, the Dow is on track to log its fourth straight weekly advance. It remains down just 10.2% so far this year.
The blue-chip gauge has risen 5% so far this week, while the S&P 500 is up 3.1% and the Nasdaq has risen 1.1%.
What’s driving markets?
All eyes were on the Dow Friday as the blue-chip gauge was the only major index to reach new notable highs late this week as its advance during the month of October has somewhat ameliorated its losses for the year so far.
The Dow has risen 13.5% since the start of the month, leaving it on track for its best October performance since it was created in the late 19th century.
Perhaps the biggest reason for the Dow’s rise this month is tied to its composition. The average is generally light on technology stocks, while including more of the energy and industrial stocks that have outperformed this year.
“The Dow just has more of the winners embedded in it and that has been the secret to its success,” said Art Hogan, chief market strategist at B.Reily Wealth.
Despite some volatility in the premarket session, all three major indexes turned higher after the open as investors remained fixated on expectations for the Fed to down shift to smaller interest rate hikes after next week’s policy meeting — an expectation that endured after the latest reports on inflation and wage growth released Friday.
Brad Conger, deputy chief investment officer at Hirtle, Callaghan & Co., said Friday’s data didn’t interfere with mounting expectations that the Fed might soon pause its campaign of aggressive rate hikes.
“Basically, the market is starting to price in a pause, not a pivot, but maybe a pause. The end is in sight,” Conger said.
The September core personal consumption expenditures price index — the Fed’s preferred gauge of inflation pressures — came in roughly in line with economists expectations, while a more modest 1.2% gain in private wages and salaries in the third quarter was interpreted as a sign that wage growth may have finally peaked, according to Andrew Hunter, senior U.S. economist at Capital Economics.
“The Federal Reserve has not yet broken the persistent trend in core inflation and so will likely stay aggressive at next week’s meeting. However, some areas of the economy show significant weakness and could build the case that the Fed downshifts to smaller rate hikes in 2023,” Jeffrey Roach, Chief Economist for LPL Financial in Charlotte, NC, said.
Since the start of the week, investors have digested a batch of disappointing numbers from some of America’s largest tech companies, which helped to sully the overall quality of S&P 500 earnings this quarter.
On Thursday night, Amazon.com AMZN, -9.29%
joined Microsoft Corp. MSFT, +2.75%,
Alphabet Inc. GOOGL, +2.76%
and Meta META, +0.34%
by publishing disappointing earnings for the quarter that ended Sept. 30.
But despite the disappointing results reported this week, in aggregate, S&P 500 firms are beating earnings expectations by 3.8%, according to Refinitiv data. That’s compared to a long-term average of 4.1% since 1994. However, if energy firms are excluded, the picture darkens substantially.
Shares of Amazon were off 10% after the e-commerce giant, which dominates the consumer-discretionary sector, predicted slower holiday sales and profit while also reporting slower-than-expected growth in its key cloud-computing business.
Peter Garnry, head of equity strategy at Saxo Bank, said investors were unnerved by Amazon’s guidance cut.
“The outlook for Q4 was what terrified investors with the retailer guidance operating income in the range $0-4 billion vs est. $4.7 billion and revenue of $140-148 billion vs est. $155.5 billion,” he said in a note.
One notable exception to the downbeat earnings news this week was Apple Inc. AAPL, +7.21%,
which proved a bright spot after the iPhone maker’s revenue and earnings topped forecasts, helped by record back-to-school sales of Macs. Shares were up nearly 0.9% in premarket trading.
Companies in focus
Oil giants Chevron Corp.CVX and Exxon Mobil Corp. XOM were climbing on Friday after reporting strong results. Chevron is a Dow component.
Intel Corp.INTC shares advanced more than 8% after reporting an earnings beat. The chip maker said it would cut costs by $3 billion next year, and lay off employees, as it trimmed its outlook again.
An electric car being charged in Germany. The European Union is moving forward with plans to ramp up the number of EVs on its roads.
Tomekbudujedomek | Moment | Getty Images
The EU’s plans to phase out the sale of new diesel and gasoline cars and vans took a big step forward this week after the European Council and European Parliament came to a provisional agreement on the issue.
In a statement Thursday evening, the European Parliament said EU negotiators had agreed on a deal related to the European Commission’s proposal for “zero-emission road mobility by 2035.”
The plan seeks to slash CO2 emissions from new vans and passenger cars by 100% from 2021 levels and would constitute an effective ban on new diesel and gasoline vehicles of these types. The European Commission is the EU’s executive branch.
Read more about electric vehicles from CNBC Pro
The parliament said smaller automakers producing up to 10,000 new cars or 22,000 new vans could be granted a derogation, or exemption, until the end of 2035.
It added that “those responsible for less than 1,000 new vehicle registrations per year continue to be exempt.”
Formal approval of the deal from the European Council and European Parliament is required before it takes effect.
Thursday’s news was welcomed by Transport & Environment, a Brussels-based campaign group. “The days of the carbon spewing, pollution belching combustion engine are finally numbered,” said Julia Poliscanova, T&E’s senior director for vehicles and e-mobility.
Others commenting on the plans included the European Automobile Manufacturers’ Association. In a statement, it said it’s now urging “European policy makers to shift into higher gear to deploy the enabling conditions for zero-emission mobility.”
“This extremely far-reaching decision is without precedent,” said its chair, Oliver Zipse, who is the CEO of BMW. “It means that the European Union will now be the first and only world region to go all-electric.”
“Make no mistake, the European automobile industry is up to the challenge of providing these zero-emission cars and vans,” he added.
“However, we are now keen to see the framework conditions which are essential to meet this target reflected in EU policies.”
“These include an abundance of renewable energy, a seamless private and public charging infrastructure network, and access to raw materials.”
During an interview with CNBC earlier this month, Carlos Tavares, the CEO of Stellantis, was asked about the EU’s plans to phase out the sale of new ICE cars and vans by 2035. ICE vehicles are powered by a regular internal combustion engine.
It’s “clear that the decision to ban pure ICEs is a purely dogmatic decision,” said Tavares, who was speaking to CNBC’s Charlotte Reed at the Paris Motor Show.
He added that Europe’s political leaders should be “more pragmatic and less dogmatic.”
“I think there is the possibility — and the need — for a more pragmatic approach to manage the transition.”
The European Union reached a deal Thursday to effectively ban new gas-powered cars beginning in 2035.
It’s a move seen as a key part of a broader plan to reduce carbon emissions across economic sectors — and a major policy achievement to carry into high-profile United Nations climate-change talks in Egypt early next month.
Speculation about a deal, which had been heavily debated, was reported earlier this week and confirmed Thursday via a tweet from the spokesperson for the rotating presidency of the bloc, currently held by the Czech Republic.
Broadly, the agreement is part of a plan that requires a 55% cut in emissions across transportation, buildings, power generation and other sources this decade. That halfway mark is seen as a major milestone as the EU aims to reach net-zero emissions by 2050.
The announcement comes as the U.N. climate arm has released a series of updated reports this week. One chastised the “highly inadequate” steps to date by rich nations to cut emissions of Earth-warming greenhouse gases, such as those from burning fossil fuels. The window to act is closing but is not quite shut yet, according to the Emissions Gap report from the U.N. Environment Programme. “Global and national climate commitments are falling pitifully short,” U.N. Secretary-General Antonio Guterres said Thursday. “We are headed for a global catastrophe.”
The EU is the world’s largest trade bloc, and its moves could push other major economies to also set firm cutoff dates for gasoline RB00, -0.52%
and diesel engines. Volkswagen AG VOW, +0.88%
and Daimler Truck Holding AG DTG, +2.67%
are already moving deeper into electric vehicles. Volkswagen this week said it would stop selling internal-combustion-engine cars in Europe between 2033 and 2035.
Other major economies, including the U.S., have set similar goals, but the U.S. has not set any federal-level restrictions on vehicle manufacturing. Some individual automakers, including General Motors GM, +0.79%, have set their own timelines. And California approved plans in August to mandate a gradual phasing out of vehicles powered by internal-combustion engines, with only zero-emission cars and a small portion of plug-in gas/electric hybrids to be allowed by 2035.
As the world’s fifth-largest economy, California can create ripple effects with its moves. At least 15 other states have signed on to California’s existing zero-emission vehicle program or have shown interest in and are working toward codifying the change. Among them, Washington, Massachusetts, New York, Oregon and Vermont are expected to adopt California’s ban on new gasoline-fueled vehicles.
